What is Accounting in Tally?
What is Accounting? Accounting is the process of identifying, recording, classifying and reporting information on financial transactions in a systematic manner for the purpose of providing financial information for decision making. Accounting is a systematic recording day to day business transaction is called as accounting. 🔄 Key Steps in Accounting: Identifying – Recognizing the financial transactions that need to be recorded. Recording – Writing them down in the books of accounts (Journal). Classifying – Grouping similar transactions into categories (Ledger). Reporting – Preparing summaries in the form of financial statements (like income statement, balance sheet, etc.) Types of Accounts In the world of accounting, understanding the types of accounts is essential for recording transactions accurately. Every transaction in accounting affects at least two accounts, and each account falls under one of three main categories: Personal, Real, and Nominal Accounts. Personal Account Real Account Nominal Account 1. Personal Account:- Personal accounts relate to individuals, companies, firms, bank, and organizations. These accounts represent people or entities with whom the business has financial dealings. Natural Persons: Individuals (e.g., Ankit’s Account, Ramesh’s Account) Artificial Persons: Companies, banks, or institutions (e.g., SBI Bank Account, Infosys Ltd.) For example:- Rajesh Singh Munna Enterprise Wipro Pvt Ltd PNB Bank Capital etc. Rules -: Debit the receiver Credit the giver Explanation Debit the receiver: When a business receives something, such as cash or goods, it is recorded as a debit in the accounting system. Credit the giver: When a business gives something, such as cash or goods, it is recorded as a credit in the accounting system. 2. Real Account: Real accounts relate to assets and properties both tangible and intangible. These accounts are permanent in nature and continue from year to year (they do not close at the end of an accounting period). Tangible Assets: Physical items (e.g., Cash, Machinery, Furniture) Intangible Assets: Non-physical assets (e.g., Goodwill, Patents, Trademarks) For example:- Cash Land Building Furniture Computer etc. Rules :- Debit what comes in Credit what goes out Explanation Debit what comes in: When something comes into the business (like cash, goods, or equipment), we record it as a debit. Credit what goes out: When something goes out of the business (like paying cash or giving away goods), we record it as a credit. 3. Nominal Account: Nominal accounts deal with incomes, expenses, losses, and gains. These accounts are temporary and are closed at the end of the financial year For example:- Discount Commission Salary wages Freight etc. Rules :- Debit expenses and losses Credit incomes and gains Debit expenses and losses: When the business spends money (like rent, salary, electricity) or suffers a loss, we record it as a debit. Credit incomes and gains: When the business earns money (like sales, commission, or interest) or receives any income, we record it as a credit. 🔄 Summary Table Type Definition Examples Rule Personal Deals with people or organizations Ravi A/c, SBI Bank A/c Debit the receiver, Credit the giver Real Deals with assets and properties Cash, Furniture, Building Debit what comes in, Credit what goes out Nominal Deals with income, expenses, gains, losses Rent, Salary, Commission Income Debit expenses/losses, Credit incomes/gains Understanding the three golden types of accounts—Personal, Real, and Nominal—is one of the most important building blocks in accounting. Once you’re clear on these, recording journal entries becomes easy and error-free.
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