+ , + , + , = + , (ii) Credit purchases + , + , Equation + , + , + , = + , + , (iii) Payment made to Ramani in full settlement – , + – , Equation + , + , + , = + , Accountancy - (iv) Credit sales – , + , + Equation + , + , + , + , = + , (v) Cash receipt from Rajan. in full settlement + , – , – Equation + , + , + , = + , (vi) Wages outstanding – + Equation + , + , + , = + , + . . Traditional approach Under this approach, the two fold aspects (debit and credit) in each transaction are recorded in the journal by following double entry system.
For the purpose of recording the transactions, accounts are classified into personal and impersonal accounts. . . .
Classification of accounts: Under double entry system of book keeping, for the purpose of recording the various financial transactions, the accounts are classified as personal accounts and impersonal accounts. (i) Personal account : Account relating to persons is called personal account. The personal account may be natural, artificial or representative personal account. (a) Natural person’s account: Natural person means human beings.
Example: Vinoth account, Malini account. (b) Artificial person’s account: Artificial person refers to the persons other than human beings recognised by law as persons. They include business concerns, charitable institutions, etc. Example: BHEL account, Bank account.
(c) Representative personal accounts: These are the accounts which represent persons natural or artificial or a group of persons. Example: Outstanding salaries account, Prepaid rent account. When expenses are outstanding, it is payable to a person. Hence, it represents a person.
(ii) Impersonal accounts : All accounts which do not affect persons are called impersonal accounts. These are further classified into a) Real accounts and b) Nominal accounts. (a) Real account: All accounts relating to tangible and intangible properties and possessions are called real accounts. .
Tangible real accounts: These include accounts of properties and possessions which can be seen and touched. These have physical existence. Example: Plant, Machinery, Building, Furniture, Stock. .
Intangible real accounts : These include accounts of properties and possessions