All financial business transaction have effect on two sides, namely receiving benefit and giving benefit. When this two hold effect is recorded systematically it become double entry- system. This system developed by England.
All the financial transactions can be classified in two groups.
I. personal accounts.
II. Impersonal accounts.
I. Personal a/c: Transactions between two persons is called personal a/c. Persons means it may be natural persons or firm, govt. Expand Institutions etc. Accounts relates to persons called personal a/c. There are three types of persons. They are-
(a) Natural persons: The living individuals like me and you comes under natural persons.
(b) Artificial persons: The persons who created by law established as per legal procedure called Artificial person. Ex : Companies, Firms, Banks, Co-operative Societies etc.
(c) Representative person: The person’who are represent some person or groups called Representative person. Accrued expenses a/c, o/ expenses a/c. prepaid expenses. o/ Income, Income received in advance etc. are examples for representative person.
II. Real a/c : These accounts relates to assets or properties are owned by a business. Real accounts may be classified as :
(a) Tangible assets: The assets which can be see and touch called Tangible assets.
Ex : Land and Building, plant and machinery, furniture, stock, Vehicles, etc.
(b) Intangible assets: Assets which can’t be seen or touch called intangible assets. Assets which do not have physical existence but can be bought and sold and benefited by business.
Example : Goodwill, Trade mark, copy rights etc.
III. Nominal a/c : The accounts of various expenses or losses and income or gain recorded called nominal a/c. They cannot be seen or touched. It is intangible in nature. They are fictitious or not real or nominal. The expense which a business incurs and income earns in the activities of business. Nominal a/c can classified as :
(a) Income or gain a/c: Accounts of gain, revenue, income or profit recorded.
Example : Discount received, rent received, commission received etc.
(b) Expenses a/c: Losses and expenses are recorded.
Example : Salary, bad debts, Travelling expense, Depreciation etc.
