The grouping of separate statement of transaction called Accounts. An account may be defined as a summarized statement of transactions relating to a particular item or a person for a particular period.
For example, a cash account is kept to know the cash balance at any time.
Kind of Accounts: As there are separate accounts for each distinct transaction, a business has a more number of accounts. These accounts are classified under three heads.
Real Account : Accounts of assets are called the real accounts. Cash account, Stock Account, Furniture account , goodwill account etc are example for Real Account. “Debit what comes in and credit what goes out” For eg. Bought Furniture for Cash here, Furniture comes in and Cash Goes out . So Debit the Furniture and credit the Cash.
Personal Account : Accounts of individuals and companies such as banks, firms, societies, capital, drawings account etc are Personal Accounts . “Debit the receiver and credit the giver”. For eg. Cash Received from Ramesh . Ramesh is giver and Cash comes in . Ramesh-Credit and Cash- Debit
Nominal Account : All accounts of expenses and incomes. Salaries Account, Rent Account, Commission Account, Advertisement Account etc. “ Debit all expenses and losses and Credit all incomes and gains” Paid Salary, Salary is an expense. Debit the Salary account and credit cash account.
Journal and Ledger : It is book of Prime entry. The process of making entries in the Journal is known as Journalising. In each journal entry, a brief description of the transaction is given, and it is called ‘narration’. Ledger is the principal book of accounts of a business establishment. The process of transferring journal entries to the respective accounts in the ledger called “Posting”. The source of entries in the ledger accounts is the Journal. Hence the Ledger is known as Book of Second entry.