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What Do You Understand By Classification Of Accounts?

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According to Modern approach Accounts are classified into five groups:    1 Asset    2. Expense    3. Revenue    4. Liability    5. Capital According to Traditional approach Accounts are classified into three groups: 1.    Personal Accounts: Accounts recording transactions relating to individuals or firms or company are known as personal accounts. Personal accounts may further be classified as : (1) Natural person's personal accounts: The accounts recording transactions relating to individual human beings e.g., Anand's A/c, Ramesh's A/c, Pankaj's A/c are classified as natural person's personal accounts. (2) Artificial person's personal account: The accounts recording transactions relating to limited companies. Bank, firm, institution, club. Etc. E.g. Delhi Cloth Mill; Hans Raj College; Gymkhana Club are classified as artificial persons' personal accounts. (3) Representative personal accounts: The accounts recording transactions relating to the expenses and incomes are classified as nominal accounts. But in certain cases due to the matching concept of accounting the amount, on a particular date, is payable to the individuals or recoverable from individuals. Such amount (a) relates to the particular head of expenditure or income and (b) represents persons to whom itis payable or from whom it is recoverable. Such accounts are classified as representative personal accounts e.g. "Wages Outstanding Account", Pre-paid Insurance Account. Etc. 2.    Real Accounts The accounts recording transactions relating to tangible things (which can be touched, purchased and sold) such as goods, cash, building. Machinery etc., are classified as tangible real accounts. Whereas the accounts recording transactions relating to. Intangible things (which do not have physical shape) such as goodwill, patents and copy rights. Trade marks etc., are classified as intangible real accounts. 3.    Nominal Accounts: The accounts recording transactions relating to the losses, gains. Expenses and incomes e.g., Rent, salaries, wages, commission, interest, bad debts etc. Are classified as nominal accounts. As already discussed, wherever a nominal account represents the amount payable to or receivable from certain persons it is known as representative personal account.

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