Modern Approach
Assets Expense Liabilities Revenue Capital
Debit Credit
Credit Debit
Debit balances Credit balances
Traditional approach
Natural Artificial Representative
Personal personal personal personal
Impersonal Real Nominal
Personal
Natural – Ram, Sohan, Mohan etc.
Artificial – Company, club etc.
Representative personal – outstanding, accrued
Impersonal
Real
Nominal
Personal Accounts
1. Personal Accounts: Accounts which relate to persons, i.e., individuals, firms, companies,
debtors or creditors, etc., are Personal Accounts. Examples of Personal Accounts are the
account of Ram & Co., a customer (Debtor), or the account of Jhaveri & Co., a supplier of
goods (Creditor), Capital Account and Drawings Account of the proprietor. The main purpose
of preparing a Personal Account is to determine the balance due to or due from persons or
organisations.
Personal Accounts can be classified into three categories:
(i) Natural Personal Accounts: The term ‘Natural Persons’ means persons who are
creations of God. Therefore, these will include accounts in individual name. For example,
Ram’s Account, Asha’s Account, etc.
(ii) Artificial Personal Accounts: These accounts include accounts of corporate bodies or
institutions which are recognised as persons in business dealings. For example, the account
of a limited company, the account of a club or a cooperative society, etc,
(iii) Representative Personal Accounts: These are accounts which represent a certain
person or a group of persons. For example, if rent is due to the landlord, an Outstanding
Rent Account will be opened in the books. The Outstanding Rent Account represents the
amount of rent payable to the landlord. Other examples of the Representative Personal
Accounts are Prepaid Rent Account, Accrued Commission Account, Unearned Interest
Account, etc.
Rule of Debit and Credit—Debit the receiver. Credit the giver.
2. Impersonal Accounts: Accounts which are not personal such as Machinery
Account, Cash Account, Rent Account, etc., are termed as Impersonal
Accounts. These can be further sub-divided into two accounts:
(i) Real Accounts: Real Accounts are the accounts which relate to tangible or
intangible assets of the firm (excluding debtors). Examples of tangible assets
are: land, building, investments, plant and machinery, stock or cash in hand.
Examples of intangible assets are: goodwill, patents and trademarks.
Rule of Debit and Credit—Debit what comes in. Credit what goes out.
(ii) Nominal (Revenue or Expense) Accounts: Accounts which relate to
expenses, losses, gains, revenue, etc., are termed as Nominal Accounts.
These are Salary Account, Purchases Account, Interest Paid Account, Sales
Account and Commission Received Account. The net result of all the Nominal
Accounts is profit or loss which is transferred to the Capital Account.
Rule of Debit and Credit—Debit all expenses and losses. Credit all
incomes and gains.
Traditional Approach
Real
Debit what Comes in credit what Goes out
Nominal
Debit all Expenses and Losses &
Credit all Incomes and Gains
Personal
Debit the Receiver and credit the Giver
Nominal Personal
Real
Purchases Debtors
Cash Sales Creditors
Land Purchases return Bills receivable
Building Sales return Bills payable
Rent Outstanding exp
Vehicle Salary Prepaid exp
Machinery Wages Income recd in advance
Carriage in/out Accrued incomes
Plant Advertisement Capital
Furniture Commission recd Drawings
Investments Interest received Provision for bad debts
Discount all / recd Loan
Goodwill Bad debt Current account
Stock Bad debt recovered
Bank
Fixtures Freight
Bank overdraft
Depreciation
Repairs
Excise duty
‘T’ Shape accounts
Assets A/C
Increase + Amt. Decrease - Amt.
Liabilities A/C
Decrease - Amt. Increase + Amt.
Prepare ’T’ shape Furniture A/C
1. Purchased Furniture 5000
2. Sold Furniture 3000
3. Depreciation 1000
Furniture A/C
Increase + Amt. Decrease - Amt.
1. Cash 5000 2. Cash 3000
3. Dep. 1000
Balance 1000
5000 5000
Prepare ’T’ shape Mohan’s A/C
1. Purchased goods from Mohan 5000
2. Paid Mohan 3000
3. Returned goods to Mohan 500
Mohan’s A/C
Decrease - Amt. Increase + Amt.
2. Cash 3000 1. Purchases 5000
3. Purch ret. 500
Balance 1500
5000 5000
1 1) Land & Bldg – Real
2) Excise duty – Nominal
3) Creditors – Personal
4) Capital – Personal
5) Motor vehicles – Real
6) Goodwill - Real
7) Investments – Real
8) Salary – Nominal
9) Debtors - Personal
10) Bad debts – Nominal
11) Depreciation – Nominal
12) Wages – Nominal
13) Repairs – Nominal
14) Ramesh – Personal
15) Interest Recd – Nominal
16) Bank overdraft – Personal
17) Purchase Returns – Nominal
18) Drawings – Personal
19) Freight – Nominal
20) Return Inwards - Nominal
2
Assets Expense Liabilities Capital Revenue
Land Salary Bank OD Capital Interest Rec
Investments Bad debts Creditors
Building Depreciation
Debtors Freight
Motor vehicles Wages
Goodwill Repairs
3
Assets Liabilities Capital Revenue Expenses
P & Mach Bank Loan capital Sales Rent
Furniture Bills pay Disc rec carriage in
Goodwill Adv inc carriage out
Accrued inc Out exp Purchases
Wages
4
Nature Increase
Furniture Asset Debit
Mohan Capital Credit
Salary Expense Debit
Purchases Expense Debit
Sales Revenue Credit
Interest paid Expense Debit
Sohan Liability Credit
Ram Asset Debit
5
Nature Decrease
Cash Asset Credit
Bank OD Liability Debit
O/S Salary Liability Debit
O/S Rent Liability Debit
Prepaid ins Asset Credit
Mohan Capital Debit
1. Credit
2. Credit
3. Debit
4. Credit
7
Started business
Cash Capital
Asset Capital
Debit Credit
Purchased Furniture
Furniture Cash
Asset Asset
Debit Credit
Goods purchased
Purchases Anshul
Expense Liab
Debit Credit
Paid to Anshul
Anshul Cash
Liab Assets
Debit Credit
Paid Salary
Salary Cash
Expense Asset
Debit Credit
Paid Rent
Rent Cash
Expense Asset
Debit Credit
Received Interest
Cash Interest
Asset Income
Debit Credit
8
Machinery A/C
Increase + Amt. Decrease - Amt.
1. Cash 40000 2. Cash 10000
3. Cash 8000 4. P/L 14000
5. Dep. 1000
Balance 23000
48000 48000
9
Cash A/C
Increase + Amt. Decrease - Amt.
1. Capital 40000 2. Purchases 20000
3. Sales 24000 4. Rent 400
5. Salaries 600
6. Drawings 1000
Balance 42000
64000 64000
10
Rakesh’s A/C
Decrease - Amt. Increase + Amt.
2. Purch ret. 5000 1. Purchases 50000
3. Cash 20000 4. Purchases 10000
Balance 35000
60000 60000
11
Brij’s A/C
Increase + Amt. Decrease - Amt.
1. Sales 25000 2. Cash 10000
3. Disc all 500
4. Sales ret 5000
Balance 9500
25000 25000
13
Capital A/C
Decrease - Amt. Increase + Amt.
31.3 P/L 18000 1.4 Cash 200000
31.3 Draw 15000
31.3 Balance 167000
200000 200000
14
Capital A/C
Date Particulars JF Amt. Date Particulars JF Amt.
10.5 To Drawings 10000 1.4 By Cash 45000
30.11 To Drawings 5000 15.7 By Cash 55000
31.3 By P/L 30000
31.3 To Bal c/d 115000
130000 130000
1.4 By Balance b/d 115000
