Page 22 - DMGT104_FINANCIAL_ACCOUNTING

Financial Accounting

Notes Personal accounts are of the following types:
1. Natural persons: An account recording transactions with an individual human being is
termed as a natural persons’ personal account. For example, Kamal’s account, Mala’s
account, Sharma’s accounts. Both males and females are included in it
2. Artificial or legal persons: An account recording financial transactions with an artificial
person created by law or otherwise is termed as an artificial person, personal account.
For example, Firms’ accounts, limited companies’ accounts, educational institutions’
accounts, Co-operative society account.
3. Groups/Representative personal Accounts: An account indirectly representing a person
or persons is known as representative personal account. When accounts are of a similar
nature and their number is large, it is better tot group them under one head and open a
representative personal account. For example, prepaid insurance, outstanding salaries,
rent, wages, etc.
When a person starts a business, he is known as proprietor. This proprietor is represented by
capital account for that entire he invests in business and by drawings accounts for all that which
he withdraws from business. So, capital accounts and drawings account are also personal accounts.
The rule for personal accounts is:

Debit the receiver
Credit the giver

1.5.2 Real Accounts

Accounts relating to properties or assets are known as ‘Real Accounts’, A separate account is
maintained for each asset e.g., Cash Machinery, Building, etc.,

Real accounts can be further classified into tangible and intangible.
1. Tangible Real Accounts: These accounts represent assets and properties which can be seen,
touched, felt, measured, purchased and sold. For example, Machinery account Cash account,
Furniture account, stock account, etc.
2. Intangible Real Accounts: These accounts represent assets and properties which cannot be
seen, touched or felt but they can be measured in terms of money. For example, Goodwill
accounts, patents account, Trademarks account, Copyrights account, etc.
The rule for Real accounts is:
Debit what comes in
Credit what goes out

1.5.3 Nominal Accounts

Accounts relating to income, revenue, gain expenses and losses are termed as nominal accounts.
These accounts are also known as fictitious accounts as they do not represent any tangible asset.
A separate account is maintained for each head or expense or loss and gain or income. Wages
account, Rent account Commission account, Interest received account are some examples of
nominal account.
The rule for Nominal accounts is:

Debit all expenses and losses
Credit all incomes and gains

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