Nature of Accounts and Rules of Debit and Credit Test 24

When the business transactions take place, the first step is to record the same in the books of original entry or subsidiary books or books of prime or journal. Thus, journal is a simple book of accounts in which all the business transactions are originally recorded in chronological order and from which they are posted to the ledger accounts at any convenient time. Journalisisng refers to the act of recording each transaction in the journal and the form in which its is recorded, is known as a journal entry.

Accounts relating to properties or assets are known as "Real Accounts". A separate account is maintained for each asset. Real accounts can be further classified into tangible and intangible.

Business transactions are events that have a monetary impact on financial statements of an organization. When accounting for these transactions, numbers are recorded into teo accounts, where the debit column is on the left side  and the credit column on the right.

Accounts relating to properties or assets are known as "Real Accounts". A separate account is maintained  for each asset e.g. Cash, Machinery, Building, etc. Real accounts  are further classified into tangible and intangible.

Sundry income includes all those miscellaneous income that is generated by business and cannot be categorized under a particular head therefore written in sundry income group which is nominal in nature and from ledger it is posted to profit and loss account in the final accounts.

Accounts recording transactions with a person or group of persons are known as personal accounts. These accounts are necessary, in particular, to record credit transactions. Personal accounts are of the following types:

1. Natural persons: An account recording transactions with an individual is termed as a natural persons' personal account. For e.g. Kamal's account, Mala's account. Both males and females are included in it.

2. Artificial or legal persons: An account regarding financial transactions with an artificial person created by law or otherwise is termed as an artificial persons' personal account. For e.g. Firms' account, limited companies' accounts.

3. Representative personal account: An account indirectly representing a person or persons is known as representative personal account. When accounts are of a similar nature and their number is large, it is better to group them under one head and open a representative personal account. For e.g. prepaid rent, outstanding wages etc.

Drawings are related to the account of an individual, i.e. proprietor's account which shows the amount withdrawn by the proprietor from the business for his/her personal use. Hence, it is classified as a personal account.

Accounts relating to income, revenue, gain, expenss and losses are termed as nominal accounts. These accounts are also known as fictitious assets as they do not represent any intangible asset. A separate account is maintained for each head or expense or loss and gain or income. Wages account, Rent account, Commission account, interest received account are some examples of nominal accounts. 

There are mainly three types of accounts: Real, Personal and Nominal accounts. Personal accounts are classified into three subcategories: Artificial, Natural and Representative.

The left side of asset accounts is used for recording increases and the right side is used for recording decreases. It is explained that the right side of liability and capital accounts is used to record increases; it  naturally follows that he left side of such accounts is used to record decreases. The left side of all accounts, whether asset, liability or capital, is called debit and the right side is called credit. Consequently, a debit may signify either an increase or decrease, depending on the nature of the account, and a credit may likewise signify either an increase or decrease, depending on the nature of the account. 

Outstanding expenses are those expenses which have been incurred and consumed during an accounting period and are due to be paid. Examples include outstanding salary, outstanding rent, etc. Outstanding expenses are recorded in the books at the end of an accounting period to show true numbers of a business.