Difference among personal or real account or nominal account
What is the difference among personal or real account and nominal account?
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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.
Super Profit Method: (Goodwill method): When a firm earns huge profit in comparison to normal profit (usually earned by other firms of similar industry) then the difference is termed as Super Profit. Goodwill is computed on the basis
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