Double Entry System
This system was invented by an Italian merchant named Luco paiciali in 1494 A.D. According to this system every transaction has got a two fold aspect, i.e.,one party giving the benefit and the others receiving the benefit. Every transaction is divided into two sides, debit and credit. One account is to be debited and another is to be credited. The rules for debiting and crediting are discussed in next section. Suppose the goods are sold to Mr. A for cash, two accounts are going to be created viz., the goods/sales a/c and cash account.This system of recording every transaction in two accounts is known as Double Entry System.
The basic principle under this system is that for every debit there must be a corresponding credit or vice-versa. Before discussing the rules of debit and credit let us discuss how the accounts are classified.
All accounts are broadly classified into two heads :
(1) Personal;
(2) Impersonal.
(a) Real;
(b) Nominal.
Personal Account
It deals with the accounts relating to persons and takes the following forms:
(i) Natural Person: The name of an individual, the suppliers and buyers, say, Ram, Shyam, etc.
(ii) Artificial Person or legal: Bank, the name of any Firm,Association, Club, etc. Notional Person or the Body.
(iii) Representative Personal Account: Outstanding liabilities for Rent, Salary, etc.
Real Account
It stands for properties and assets which are broadly classified as tangible and intangible e.g., Plant, Cash, Land, Building, etc.
Nominal / Fictitious Account
This system was invented by an Italian merchant named Luco paiciali in 1494 A.D. According to this system every transaction has got a two fold aspect, i.e.,one party giving the benefit and the others receiving the benefit. Every transaction is divided into two sides, debit and credit. One account is to be debited and another is to be credited. The rules for debiting and crediting are discussed in next section. Suppose the goods are sold to Mr. A for cash, two accounts are going to be created viz., the goods/sales a/c and cash account.This system of recording every transaction in two accounts is known as Double Entry System.
The basic principle under this system is that for every debit there must be a corresponding credit or vice-versa. Before discussing the rules of debit and credit let us discuss how the accounts are classified.
All accounts are broadly classified into two heads :
(1) Personal;
(2) Impersonal.
(a) Real;
(b) Nominal.
Personal Account
It deals with the accounts relating to persons and takes the following forms:
(i) Natural Person: The name of an individual, the suppliers and buyers, say, Ram, Shyam, etc.
(ii) Artificial Person or legal: Bank, the name of any Firm,Association, Club, etc. Notional Person or the Body.
(iii) Representative Personal Account: Outstanding liabilities for Rent, Salary, etc.
Real Account
It stands for properties and assets which are broadly classified as tangible and intangible e.g., Plant, Cash, Land, Building, etc.
Nominal / Fictitious Account
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