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In the conventional approach, accounts were classified as personal, real and nominal and different rules of debit and credit for different accounts were developed. The classification of accounts and rules of debit and credit are discussed as under :

Classification of Accounts:

  • Meaning of Account

An account is the systematic presentation of all material information regarding a patticular heading at one place, under one head. Transactions recorded in the account also show the nature and direction of the information.


There are two types of persons i.e., natural and artificial. Accounts is related to both these types of persons. Natural persons mean human beings, such as John, Jack, David and James. Artificial persons do not have physical construction as human beings but they work as personal accounts. These accounts are related to firms, companies, institutions, factories and establishments, such as Gupta & Sons Account, Michael & Bros Account, Bank of India Account, Congress Party’s Account, Bata Shoe Company’s Account and Nagaland
Sporting Club’s Account, Debtor’s Account, Creditor’s Account, Capital Account and Drawings Account.
Representative Personal Accounts represent a particular person and group of persons, such as outstanding wages A/c. Here, instead of using the names of workers whose wages is outstanding, we shall be  crediting outstanding wages Ale which represents workers, whose wages are payable. In this way, Outstanding salaries, Prepaid expenses, Accrued and unearned income are Representative Personal Accounts.

  • Rules of Debit and Credit

Personal accounts either receive something or give something in the business. When goods are sold to them or amount paid to them, they are the receiver. In the same way, personal accounts are giver, when goods are purchased from them or amount is received from them. According to this nature of personal account, the rule of ‘debit and credit’ in the personal account are as under:

                                                                                                Debit the receiver
                                                                                               Credit the giver

Illustration. Goods sold to Kunal. Here, in this transaction, Kunal is a personal account as being the name of human beings. He is receiving goods because it has been sold to him: He will be debited in the entry as receiver. In the same way, in case of goods purchased from Kishore, the giver of goods i.e., Kishore will be credited. Bank Ale will be debited in case of deposits into the Bank, because Bank will be the receiver of the deposit. If the amount is withdrawn from Bank, the amount will be given by the Bank. The Bank will be the giver, as such credited in the book. It shows that we have to identify the personal account, which will be in the name of persons, firms, companies and institutions. After that, it should be verified, whether the account is a receiver or giver in the transaction. If it is a receiver, it should be debited and in case of giver, it should be credited.


(i) Goods sold to Kunalfor $ 10,000
Kunal A/c Dr. 10,000
To Sales A/c 10,000
(Being goods sold to Kunal)
Note. Here Kunal’s A/c has been debited as per rule of personal A/c. (Debit the Receiver)

(ii) Goods purchased from Kishore for $ 8,000
Purchases A/c Dr. 8,000
To Kishore A/c 8,000
(Being goods purchased from Kishore)
Note. Here Kishore’s Ale has. been credited as per rule of personal A/c. (Credit the Giver)

(iii) Amount deposited into the Bank $ 20,000
BankA/c Dr. 20,000
To Cash Ale 20,000
(Being amount deposited into the bank)
Note. Here Bank Ale has been debited as per rule of personal A/c. (Debit the Receiver)

(iv) Amount withdrawn from the Bank $ 4,000
Cash A/c Dr. 4,000
To Bank A/c 4,000
(Being amount withdrawn from the bank)
Note. Here Bank Ale has been credited as per rule of personal A/c. (Credit the Giver)
We should also take into consideration the following rule in case of Personal Accounts.

                                                                                              Debit the debtor
                                                                                              Credit the creditor

The traditional rule of debiting and crediting personal accounts may sometimes prove to be incorrect. It is, therefore, advised that learners should develop an attitude for applying the modern American Accounting equation approach for journalising transactions.
In order to debit or credit representative personal accounts, the rule of debiting the Debtor and Crediting the Creditor is applied. For example, in case of outstanding salaries, salaries will be payable to those employees, whose salaries for the current year is due. They are our creditors, so outstanding salaries A/c, representative of such employees will be credited. In the same way, prepaid expenses, representing those parties who have been paid expenses in advance will be debited, because they are our debtors. As prepaid expenses represent the debtors, so prepaid expenses Ale will be debited. According to American approach prepaid expenses are assets, so it will be debited, because it is increasing (Debit the increase in assets).


(i) Goods sold to Vijay for cash $ 10,000
Cash A/c Dr. 10,000
To Sales A/c 10,000
(Being goods sold to Vijay for cash)
Note. Here Vijay’s A/c has not been debited because we have sold goods to him for cash and Vijay is not our debtor, though
he is the receiver of the goods.

(ii) Goods purchased from Fernandes for cash $ 8,000
Purchases A/c Dr. 8,000
To Cash A/c 8,000
(Being goods purchased from Fernandes for cash)
Note. Here Fernandes’s Ale has not been credited because he has made cash purchases and is not our creditor. though he is the
giver or’ the goods.
It should be noted that if any prefix or suffix i.e. outstanding, due, unpaid, owing, prepaid,
unexpired, accrued, unearned etc. is added to nominal account, it becomes personal A/c as commission
accrued A/c, unearned rent Ale, unexpired insurance and wages owing A/c.


All those accounts, which are not personal accounts are termed as impersonal accounts. These accounts may be related to assets, losses, expenses, incomes and gains. In other words, impersonal account may be classified as Real and Nominal Accounts.

            Real Accounts:  It is classified as (a) Tangible and (b) Intangible.

(a) Tangible Real Accounts. This account is related to property. In other words tangible real accounts .lie generally those accounts which are concerned with the things which really exist. All those things which can be seen, touched and have physical construction, shape, form and size are Real Accounts. In this way, Cash A/c, Building A/c, Plant A/c, Furniture A/c, Goods A/c, Machinery A/c etc. are real accounts.

(b) Intangible Real Accounts. These real accounts are intangible i.e., they do not have any physical: construction, form, size, shape. They can neither be seen nor touched. The value of these accounts are measured in pecuniary terms. Goodwill, trade marks and patent rights are its example.

  • Rules of Debit and Credit

Real accounts are related to lifeless properties which cannot do anything at their will. They are either purchased or sold. They either come into the business or go outside the business. On the basis of this nature of real account, the following rules have been ascertained: 

Debit what comes in

Credit what goes out


According to this rule, whenever any property comes into the business i.e., owned by the business, it debited and property account is credited, when it goes outside the business. In case of purchasing furniture or cash, furniture will be coming under the ownership of the f1rm, therefore, furniture account will be debited out cash account will be credited because cash is going outside the business against the payment for furniture. 



(i) Furniture purchased for cash $ 15,000

                                    Furniture A/c                           Dr. 15,000

To Cash A/c                                        15,000

(Being furniture purchased for cash) 

            Note. Here furniture Ale has been debited and cash Ale has been credited as per rule of Real Account.

(ii) Machinery sold for $ 5,000

Cash A/c                                                          Dr. 5,000

To Machinery Ale/c                             5,000

(Being amount received from the sale of machinery)

            Note. Here cash Ale has been debited and machinery Ale credited as per rule of Real Account. 


This account is just reverse to the Real account. Real accounts generally have existence, but Nominal accounts do not have any existence. These accounts do not have any form, shape and physical construction. In other words, these accounts are related to Income and Expenditure or Gains and Losses. Wages A/c, Salaries A/c, Rent A/c, Interest A/c, Discount A/c and Advertisement A/c are some of its examples.

Nominal Accounts are also known as Revenue and Expenses Accounts, because they deal with and expenses. These accounts are also known as Temporary Accounts, specially in America because accounts are closed at the end of every accounting year by transfer to Trading or Profit and Loss A/c. accounts do not have any opening or closing balance.

  • Rules of Debit and Credit

Nominal accounts are expenses or losses and incomes or gains. According to this nature of Nominal accounts, the following rules for their debit and credit have been determined:

Debit all expenses or losses

Credit all incomes or gains 

            According to the above rule, wages A/c, salaries A/c, insurance A/c and interest A/c etc. are when these expenses are met. Discount A/c, commission A/c, interest A/c, etc. are credited, whenever they received. In case of payment of salaries to workers, salaries are an expense, so salaries account will be debited. While receiving rent from the tenant, rent will be gain and thus credited in the books of accounts. 



(r) Salaries paid $ 25,000

            Salaries A/c                                         Dr.       25,000

To Cash A/c                                                                25,000

(Being salaries paid)

Note. Here salaries A/c has been debited as per rule of Nominal Account. (Expenses are debited)

(ii) Rent received $ 5,000

Cash A/c                                             Dr.       5,000

To Rent A/c                                                                 5,000

(Being rent received)

            Note. Here rent A/c has been credited as per rule of Nominal Account. (Income is credited)