What are Real accounts and what is the related ledger and the accounting rule?

0
1765

There are many different ways in which accounts can be classified and types of accounts be discussed. One of the ways is to divide all of the accounts in personal and impersonal accounts.

Real accounts are basically a sub-classification of accounts under the type of accounts which are impersonal accounts. Such classifications are usually taught at very initial level to the accounting students to help them understand what accounts are meant to be debited or credited. Such analysis also helps students to understand the “type of normal balance” i.e. whether a particular type of accounts normally have ending balance of debit nature or a credit nature.

Real accounts relates to the assets which are usually classified as “property, plant and equipment” but it also includes intangible assets. In simple words, the accounts related to real assets of the entity are called real accounts. As these accounts are not closed in a particular period rather their balances are carried forward to the next accounting period and thus remain in the accounting books forever, therefore, they are also called permanent accounts.

Examples include: land, building, machinery, inventory/stock, cash in hand and cash at bank, patents, copyrights etc.

Accounting rule related to real accounts is mostly worded as follows:

Debitwhat comes in and Creditwhat goes out

The rule actually states that whenever there is an inflow of assets (maintained under real accounts) then the relevant account is to be debited whereas in case of outflow of assets (maintained under real accounts) then the relevant account shall be credited.

This is however the case with almost all kinds of assets whether they are real assets or not i.e. the same rule applies even for the assets which are not maintained under real accounts.

The relationship between the real accounts and the ledgers cannot be defined clearly and strictly as the accounts under the classification of real accounts can fall under different types of journals and ledgers. However, the entries related to majority of the real accounts are recorded under general journal and accounts are maintained under general ledger.

But the fact remains that some accounts may be maintained under a different ledger. For example, some entities, due to enormous volume of transaction of cash, maintain cash and bank account under cash book which serves both as a journal and a ledger and at the same time different from general journal and general ledger.

LEAVE A REPLY