Classification of accounts


Classification of accounts

According to Modern approach Accounts are classified into five groups:

According to Traditional approach Accounts are classified into three groups:

  • Real – all the assets except Debtors
  • Nominal – all the expenses, incomes, losses, gains.
  • Personal – all the accounts of persons, company or firms. these are further classified into three types
  • valuation accounts - These are the accounts of provision for depreciation and provision for doubtful debts. Where fixed assets are maintained in the books of accounts at original cost, to reflect the actual book value of the assets, a provision for depreciation account on the credit is maintained. In the balance sheet, it is shown as deduction from the original cost of the asset. Similarly, if the debtors' personal accounts are retained at total amount due, a valuation account on the credit - provision for doubtful debts is required. In the balance sheet, it is shown as a reduction from sundry debtors account to reflect estimated realizable value.
    • Natural – all the accounts of persons. E.g. debtors, Creditors
    • Artificial – all the accounts of a company, a firm,or any other business organization. E.g. Bank, Sharma Traders etc.
    • Representative – all the expense O/S or prepaid, revenue in advance or accrued.