Ledgers, Trial Balance and Types of Accounts

• Ledgers and Trial Balance relate the process of double entry accounting

Types of Accounts

• Accounts classified as Personal, Real, and Nominal

Personal Account

• These accounts relate to people, who may be real entities
• Examples of real entities include Raj's Account, Rajesh's Account, Suresh's Account, etc.
• These accounts may also be artificial entities like partnership firms, companies, bodies corporate, and associations of people
• Examples of artificial entities include Rajesh and Suresh trading Co., Charitable trusts, XYZ Bank Ltd, and C Company Ltd
• There can be personal representative accounts as well
• Example: salary which is payable to employees, when it is known how much to pay each employee, is collectively a 'Salary payable A/c'

Rule for the Personal Account

• Debit the receiver
• Credit the giver
• Suresh is the receiver when goods are sold to him, so his personal account will be debited

Real Account

• These account types relate to assets or properties
• Real Accounts are classified as Tangible and Intangible

Tangible Real Accounts

• These include assets that can be touched and have a physical presence
• Examples of tangible real accounts include Building, cash, stationery, and inventory accounts

Intangible Real Accounts

• Assets that can't be touched; do not have a physical presence
• These can be measured in terms of money and have value
• Examples are Goodwill, Patents, Copyrights, and Trademarks

Real Accounts Classified

• Assets, which can be accounts receivable
• Liabilities, which can be accounts payable
• Equity, which can be ordinary shared capital

Real Account Rules

• Debit what comes into the business
• Credit what goes out of business

Real Account Example

• Furniture purchased by an entity in cash
• Debit the furniture account and credit the cash account

Nominal Account

• Nominal Account is the account types related to income, gains, losses, or expenses
• Rent, commission received, salary, and wages accounts are all examples

Nominal Account Rules

• Debit all expenses and losses of the business
• Credit all income and gains of the business

Nominal Account Example

• Salary paid is debited, while interest received is credited to the account
• A fundamental concept underlying modern bookkeeping, stating that every financial transaction has equal and opposite effects across at least two different accounts

Characteristics of the Double Entry System

• Every transaction affects two accounts
• Division of account in two parts
• Amount column divided into two parts
• Dual aspect of transaction
• Recording is done according to rules
• Accounting principles and convention act as a base
• Transactions are recorded in two stages

Double Entry Accounting

• Debit is an entry on left side of ledger, increasing asset accounts and decreasing liability and equity accounts
• Credit is entry on the right side of the ledger, increasing liability and equity accounts, and decreasing asset accounts
• A T-Account uses double entry bookkeeping and is an informal term for a set of financial records

Debits and Credits System

• Debits increase expenses and decrease assets, liabilities, and equity
• Credits increase equity, liabilities, and revenue, and decrease assets and expenses

Explanation of ledgers, trial balance, and double entry accounting. Covers Personal, Real, and Nominal account types with examples. Details the debit and credit rules for Personal accounts.