Identification of Accounts of The Transaction

This is the second step to make a journal entry in a double-entry system of accounts easily because, if you want to understand making journal entries smoothly you need to follow the step must. So what is Account? Account means in a certain accounting period aggregating similar transactions are furnished in shortlist or format following Accounting Principles and procedures under the title of individual, concern, asset, liability, revenue, and income. For Example, Salaries Expense, Cash Account, Accounts Payable, Rahim & Traders Account, Commission revenue, and so on.

Classification of Account:

We can classify Account under the Traditional or British method and Modern or American System. If you want to realize Account inherently, I think you have to follow both methods of identifying accounts.

 (A) Traditional or British method:

In this method, at first, Account can be segregated into two ways such as-

        (1) Personal Account;

        (2) Impersonal Account;

Impersonal Account also can be classified into two types, for example-

        (a) Asset or Real Account;

        (b) Nominal or Revenue and Expenditure Account;

Hence, from the aforementioned classification we can summarize the types of Account are as follows:

      (1) Personal Account;

      (2) Asset or Real Account and

      (3) Nominal or Revenue and Expenditure Account; 

Details of the classification of Accounts can be discussed elaborately is as follows: 
(1) Personal Account:
Accounts relating to individuals or organizations are called Personal Account. Personal Account can be can be classified in the viewpoint of the following: 
       (i) In the viewpoint of payable and receivable;
       (ii) In the viewpoint of the types or nature of the individuals or 
             Organizations 
 (i) In the viewpoint of payable and receivable Personal Account can be classified into two types, for example-

(a) Relating to the Receivable: 

Generally Accounts Receivable can be created due to credit or on account sales of the products or services to the customers. The accounts in the context are Accounts Receivable, Notes Receivable, Commission receivable, Interest receivable, Dividend receivable, and any other receivables from any individual or company.

(b) Relating to the Payable: 

Accounts Payable can be created based on credit purchase and due to any individuals or organizations. In the context, the accounts are Accounts payable, Note payable, Commission payable, Interest payable, and any other payable to the individuals or organizations. 
  

(ii) Again in the business world in the viewpoint of the types or nature of the individuals or Organizations, Personal Account can be classified into three types, for example-
          () Natural Personal Account;
          () Artificial Personal Account;
          () Representative Personal Account;

() Natural Personal Account:

Classification Of Account under Traditional Method:
(B) Modern or American Method:

Based on the Accounting, the equation account can be classified in the rn or American method. The Accounting Equation is as follows:
    A = L + OE
   Elaborately,
     A = L + C - D + R -E
     Here, A = Asset; 
            L = Liability;
         OE = Owner's Equity;
           C = Capital;
           D = Drawings/ Withdrawals;
           R = Revenue or Income;
           E = Expense or Expenditure;
Based on the mentioned Equation, the account can  be classified in the following way:
  (1) Asset Account;
  (2) Liability Account;
  (3) Owner's Equity Account;
  (4) Revenue Account;
  (5) Expenditure Account; 
  (6) Drawing Account;

  (1) Asset Account

All about things or items of Tangible and Intangible assets such as cash, bank, inventories, receivables, machinery, office equipment, goodwill, patent, copyright, prepaid insurance, revenue receivable, etc.are known as Asset Account. Tangible and intangible assets are physical and non-physical items respectively. Accounting treatment above both types of assets is similar or the same.

(2) Liability Account:

Received in advance from any sources except the owner or outstanding expenses are known as an ability account. For example- Bank loan, bank overdraft, salaries payable, accounts payable, unearned revenue, etc.

 (3) Owner's Equity Account: