The total business transactions are classified into three. They are as illustrated:
• Transactions associated to persons
• Transactions associated to Things
• Transactions associated to incomes and expenditures
In accountancy we have three kinds of accounts they are: personal, real and nominal.
The personal account refers to all the transactions associated to the natural persons, artificial persons and representative person’s example: Rama, Ravi, XYZ bank, outstanding rent.
A) First category of transactions fits in to the personal accounts
Rule: A real account comprises things in the business that is possessions.
Debit the receiver and then credit the provider.
B) Second category of transactions associated to: Real accounts example: machinery, buildings, cash and so on.
Rule: Debit that comes in and credit and what goes out
C) The Nominal accounts comprise all the transactions associated to the expenditures, incomes, losses and gains. Example: rent received, rent paid, bad debts, and gain on sale of an asset.
Rule: Debit of all expenses and losses and credit all incomes and gains.