Relations between Account as per Traditional Approach and Account as per Modern Approach

In Accounting, there are 3 types of accounts as per Traditional Approach/British Approach.

a) Personal Account
b) Real Account
c) Nominal Account

In Accounting, there are 5 types of accounts as per Modern approach/ American Approach.

Assets, Liabilities, Capital, Revenue, Expenses

Difference Between…….

Accounts as per Traditional Approach Accounts as per Modern Approach

3 Types 5 Types
Personal A/c, Real A/c, Nominal A/c Asset A/c, Liability A/c, Capital A/c, Revenue A/c,
Expenses
Personal A/c – Asset, Liability, Capital Asset - Personal/Real
Real A/c - Asset Liability - Personal
Nominal A/c - Revenue, Expenses Capital - Personal
Revenue - Nominal
Expenses - Nominal
Personal A/c – Dr Bal/ Cr Bal Asset - Dr Bal
Real A/c - Dr Bal Liability - Cr Bal
Nominal A/c - Dr Bal (Exp)/ Cr Bal (Inc) Capital - Cr Bal
Revenue - Cr Bal
Expenses - Dr Bal

1. An account which is Personal as per traditional approach, that account may be Asset A/c or Liability A/c or
Capital A/c as per modern approach

Examples

Mahesh’s Capital A/c – Personal A/c - (Capital A/c)

Ramesh A/c – (Supplier - Creditor) - Personal A/c - (Liability)

Suresh A/c (Customer – Debtor) – Personal A/c - (Asset)

2. An account which is Real as per traditional approach, that account must be Asset A/c as per modern approach

Example

Building - Real A/c - Asset A/c

Machinery - Real A/c - Asset A/c

3. An account which is Nominal as per traditional approach, that account may be Revenue A/c or Expenses A/c as
per modern approach

Example

Salary - Nominal A/c - Expenses A/c

Rent Paid - Nominal A/c - Expenses A/c

Rent Received - Nominal A/c - Revenue A/c

Trading A/c – Gross Profit or Gross Loss

Profit and Loss A/c – Net Profit or Net Loss
Balance Sheet – Financial Position

Profit and Loss A/c of Mr Sinha

Dr for the year ended 31st Dec 2017 Cr
Particulars Amt Particulars Amt
To Office Rent 9,000 By Gross Profit b/d 97,000
To Salaries 20,000
To Printing Expenses 1,500