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 “The higher the classification
of secrecy, the quicker you
will report it”

-George P Shultz

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 Copyright Notice

The content material in this document is protected by LETSTUTE.

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Chapter Contents

Particulars Page No.

What is account 6
Need for classification 7
Types of accounts 7-8
Objective Type Questions 9-12

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1. What is an Account?

 Account is a statement showing the summary of transactions and

balance of a person or an item.

 It also shows both the benefit received by the business and the
benefit given by the business.

 Examples of common financial accounts

are sales, accounts receivable, mortgages, loans, stock, sales, servic
es, wages and payroll.

2. Meaning of Classification of Accounts

Every business deal with other “Person” possesses “Assets”, pay

“Expenses” and receive “Income”.
So from the above, we can see every business has to keep
• An account for each person
• An account for each asset and
• An account for each expense or income.
So maintaining such accounts and grouping all accounts is
known as Classification of Accounts.

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3. Need for Classification
 Before an accountant records a transaction in his book of
accounts; he must first understand which transaction should be
debited and which should be credited. To perform such
accounting transactions, a clear idea of types of accounts and
classification of accounts is very important.
 Helps in maintaining complete record of all the business
transactions.

 Helps to make correct accounting entries.

 Helps to prepare Financial Statements.

4. Types of Accounts
-PersonalAccounts: - All the transactions relating to any
person, company and firm, are called personal accounts.
- Real Accounts: - Real accounts are kept separately for such
things which can be seen, touched, felt, measured,
purchased or sold etc.
-Nominal Accounts: - All the income and expenditures
accounts are called as nominal accounts.

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 Personal Impersonal
Personal Accounts Real Accounts Nominal Accounts
Individuals Current Assets
(Debtor, Creditor, Lender, Income
(Cash, Stock)
Borrower, Owner)
Artificial Persons Fixed Assets Gains
(Firm, Company) (Machines, Building)
Representative Persons Investments Expenses
(Sundry Debtors, O/s Expenses) (Shares, Securities)
Intangible Assets Losses
(Goodwill, Patents)

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 Objective Type Questions

Q1. Give one word for the following:

1. List of transactions falling under one head for a particular
period of time.
2. Accounts other than the impersonal account.
3. Accounts of properties.
4. Systematic brief record of transactions relating to persons &
institutions.
5. Account that include Natural Person, Artificial Person & Legal
Person.

Q2. Select the appropriate alternative from those given below:-

1. Personal Account includes _____________ A/c.
a. Natural Person
b. Legal Person
c. Representative Person
d. All of the above

2. Income & Expenditure comes under ___________ .

a. Real
b. Nominal
c. Both a & b
d. None of the above

3. Loss by Fire is __________.

a. Real A/c
b. Nominal A/c
c. Personal A/c
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 d. None of the above

4. Johnson Private Limited is a ______________.

a. Real A/c
b. Nominal A/c
c. Artificial Person A/c
d. None of the Above

5. Copyright A/c is a ____________ asset.

a. Tangible
b. Invisible
c. Intangible
d. Visible

6. Tangible Asset comes under _____________.

a. Nominal A/c
b. Both
c. Personal A/c
d. Real A/c

7. Prepaid Income is a ______________.

a. Natural Person A/c
b. Artificial Person A/c
c. Representative Person A/c
d. All of the Above

Q3. Fill in the blanks:

1. Manufacturing wages Account is a _________ Account.
2. Deutsche Bank‟s Account is a _______________ Account.
3. Drawings account is a ___________ Account.
4. Live Stock Account is neither a __________ Account nor a _________
5. Insurance Premium Account is a _________.

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Q4. State whether the following classification is correct or not.
Give the correct classification, if necessary:-
Sr. Classification Correct / Correct
Particulars
No. of Account Incorrect Classification
1. Royalty A/c Nominal
2. Machinery A/c Nominal
3. Conveyance A/c Real
4. Bank A/c Personal
5. Goods A/c Nominal
6. Building A/c Nominal
7. Capital A/c Personal
Employees Provident
8. Real
Fund A/c
9. Brokerage A/c Real
10. Audit Fees A/c Nominal
11. Rent A/c Nominal
12. Investments A/c Personal
13. Building A/c Real
14. Bad Debts A/c Personal
15. Purchases A/c Nominal
Bad Debts Recovered
16. Nominal
A/c
17. Sales A/c Nominal
18. Drawings A/c Real
19. Depreciation A/c Nominal
20. Rent Outstanding A/c Nominal

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 Answers

Q.1. 1. Account, 2. Personal Account, 3. Real Account, 4. Personal

Account, 5. Personal Account
Q2. (1.) – (d.), (2.) – (b.), (3.) – (b.), (4.) – (c.), (5.) – (c.), (6.) –
(d.), (7.) – (c.)
Q.3. 1. Nominal, 2. Personal, 3. Personal, 4. Nominal, Personal 5.
Nominal
Q.4:-
Sr. Classification Correct / Correct
Particulars
No. of Account Incorrect Classification
1. Royalty A/c Nominal Correct
2. Machinery A/c Nominal Incorrect Real
3. Conveyance A/c Real Incorrect Nominal
4. Bank A/c Personal Correct
5. Goods A/c Nominal Incorrect Real
6. Building A/c Nominal Incorrect Real
7. Capital A/c Personal Correct
Employees
8. Real Incorrect Personal
Provident Fund A/c
9. Brokerage A/c Real Incorrect Nominal
10. Audit Fees A/c Nominal Correct
11. Rent Nominal Correct
12. Investments Personal Incorrect Real
13. Building Real Correct
14. Bad Debts Personal Incorrect Nominal
15. Purchases Nominal Incorrect Real
Bad Debts
16. Nominal Correct
Recovered
17. Sales Nominal Correct
18. Drawings Real Incorrect Personal
19. Depreciation Nominal Correct
20. Rent Outstanding Nominal Incorrect Personal
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 Hope you have enjoyed Learning

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