Types of Accounts & Basic Accounting Terms

Definition of Accounting

 

Definition by the American Institute of Certified Public Accountants (Year 1961):

• Accounting is the art of recording, classifying and summarizing

• in a significant manner and in terms of money,

• transactions and events which are, in part at least, of a financial character,

• and interpreting the result thereof

 

AICPA Founded in 1887

 

Types of Accounts

1. Personal Account

       It includes 4 things

·        Natural Person

·        Artificial Account

·        Liabilities

·        4 Words

Natural Person

any natural person like Ram, Shyam, akshay, Virat etc.....

an

Artificial Person

In Simple language AP means Person created by law and winding up only by a law.

Example :-Videocon Industries A/c, Infosys Technologies A/c, Charitable Trust A/c, Ali and Sons trading A/c, ABC Bank A/c, etc.

 

 

Liabilities

It is an obligation of financial nature to be settled at a future date.

It represents amount of money that the business owes to the other parties. E.g. when goods are bought on credit, the firm will create an obligation to pay to the supplier the price of goods on an agreed future date or when a loan is taken from bank, an obligation to pay interest and principal amount is created

→ Depending upon the period of holding, these obligations could be further classified into Long Term or non-current liabilities and Short Term or current liabilities.

 

Current Liabilities - which have to be paid within 12 months.

Non Current liabilities: liabilities which have to paid after one year.

 

 

4 Words

·        Accrual

·        Outstanding

·        Advance

·        Unearned

 

If these 4 words as suffix or affix with any income and expenditure than it will be personal account.

 

2. Real Accounts

 These accounts are related to assets ,e.g. furniture, plant and machinery etc.

 

3. Nominal Account

These accounts are related to expenses or losses and incomes or gains e.g.

Salary and Wages A/c,

Rent of Rates A/c,

Travelling Expenses A/c,

Commission received a/c

Loss by fire a/c etc

 

 

Question 1 :- Nominal Account represents ?

A.  Profit and Gain

B.  Loss and Expense

C.  None

D. 
Both (A) and (B)✔

Question 2 :- SBI Account is  ?

A.  Nominal A/c

B. 
Artificial Personal Account✔

C.  Representative Personal Account

D.  None

Question 3 :- Prepaid rent is a ?

A.  Nominal A/c

B. 
Representative Personal Account✔

C.  Tangible Assets Account

D.  None

 

Question 4 :- Rent Account is a ?

A.  Personal A/c

B.  Real Account

C. 
Nominal Account✔

D.  None