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Asset account

Any physical thing or right owned that has a monetary value is called asset. for example, Land and Buildings account, Plant and Machinery account.

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Liability account

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Financial obligations of the enterprise towards outsiders are shown under separate heads as liabilities; for example, creditors account, expenses outstanding account.

Capital account

Financial obligations of a business enterprise towards its owners are grouped under this category; for example, capital contributed by owner.

Revenue account

Accounts relating to revenues of an enterprise are grouped under this category, for example; revenues from sale of goods, rent received.

Expense account

Expenses incurred and losses suffered for earning revenue are grouped under this category; for example, purchase of goods, salaries paid.

• In every business transaction, there are two aspects.
• The two aspects involved are the benefit or value receiving aspect and benefit or value giving aspect.
• These two aspects involve minimum two accounts; at least one debit and at least one credit.
• For every debit, there is a corresponding and equivalent credit. If one account is debited the other account must be credited.

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Advantages of double entry system

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Following are the advantages of double entry system:

• Accuracy
• Ascertainment of business results
• Comparative study
• Common acceptance

Transaction

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Transaction can be classified into cash transaction, bank transaction and credit transaction.

Cash transaction

When immediate cash is involved in a transaction, it is called cash transaction. For example, goods are sold for cash ` 5,000. In this case, cash ` 5,000 comes into the business and goods worth ` 5,000 go out of the business.

Bank transaction

In a transaction, if bank is involved, it is a bank transaction.

• Cash deposited into the bank
• Income of the business directly received by the bank
• Receipts through Cash Deposit Machine (CDM)
• Payment made by the customers of the business through debit card, credit card, net banking, National Electronic Funds Transfer (NEFT), Real Time Gross Settlement (RTGS), etc.
• Cash withdrawn from the bank
• Bank charges levied by the bank
• Payments made by the bank as per standing instructions
• Payments made by cheque
• Payments made by the business through debit card, net banking, NEFT and RTGS

Credit transaction

When settlement is not made by cash or through bank immediately in a transaction, it is called credit transaction. For example, purchase of goods on credit for `3,000. In this case, goods worth `3,000 come into the business and a liability of creditors worth ` 3,000 arises.

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Gold and rules

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Classification of accounts:

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Personal account

These are account relating to individuals, a group of individuals, firms and institutions.

Ex.
• Mr. karthik (individual account)
• Canara Bank (institution’s account)
• Gopal­am (partnership firm)

Real account:

These are account relating to the property or asset and cash belonging to a business concern.

Ex.
• Land and building (asset)
• Cash-in hand(asset)
• Purchases, Goodwill, etc.

Nominal account

These are accounts relating to the incomes, expenses, losses and gains of a business concern.

Ex.
• Salary accounts
• Discount allowed
• Discount received, etc.