Rules and principles of double entry System-- Personal, Real and Nominal accounts (the golden rules)

Rules and principles of double entry System

Under traditional approach, there are four types of accounts called

• Personal Accounts.
• Real Accounts.
• Nominal Accounts.
• Valuation Accounts.

Personal accounts - Accounts relating to persons are called personal accounts. These persons may be customers, suppliers, money lenders, owners and banks.

Real Accounts - Accounts related to tangible and intangible properties and possession are known as real accounts are classified as Tangible Real Accounts and Intangible Real Accounts.

Nominal Accounts - Accounts concerning the expenses, losses, incomes and gains of a business enterprise are called as nominal Accounts. These accounts helps in preparation of Income statement.

Valuation Accounts - The process of attaching monetary value to some assets and liabilities is called as valuation. The accounts where such valuation is effected are called as valuation Accounts.

Rules of debit and card under traditional approach

Personal Account : Debit the receiver. Credit the giver.

Real Accounts : Debit what comes in. Credit what goes out.

Nominal Accounts : debit all losses and expenses. Credit all income and gains.

Modern approach

modern approach of Debit and Credit is generally based on accounting equation. As modern approach is based on accounting equation, it is sometimes called as accounting equation approach. Modern approach has classified accounts under five broad categories called as:

• Assets Accounts.
• Liabilities Accounts.
• Capital Accounts.
• Revenue Accounts.
• Expenses Accounts.

In assets and Expenses : all increase are debited and all decrease are credited.

In liabilities, Capital and Revenue : all decrease are debited and all increase are credited