Memorandum Book, Rough Book or Waste Book

Memorandum Book, Rough Book or Waste Book:

Introduction:
      Whatever may be the method of book-keeping adopted, whether it is the theoretical method or the practical method, for recording the business transactions, some business houses, besides keeping the relevant books of accounts required under the method of book-keeping adopted, also keep a memorandum book, rough book or waste book. So, it is better for us to have some idea about the memorandum book, before we take up the study of the books of accounts.

Is the Memorandum Book Necessary?

     At the very outset, it may be noted that maintenance of the memorandum book is not necessary for every business concern. So, it may not be maintained by every business concern. If at all it is maintained, it may be only in big business concerns where, every day, numerous transactions take place. Small business houses, which have very few transactions everyday, do not, usually, maintain the memorandum book.

Meaning of the Memorandum Book:

     The memorandum book, rough book or waste book is the book kept by a business concern for noting down (i.e., recording) briefly it's business transactions, as and when they take place during the course of the day. In other words, it is the book kept by a business house merely for a brief listing (i.e., noting down) of the daily transactions. It is called the memorandum book, because it is kept just for the sake of memory (i.e., for ensuring that no transaction slips away from memory or is omitted from recording). It is called the rough book, as it is just a rough record of the transactions in the chronological order (i.e., in the order of dates). It is called the waste book, as it will be a waste (i.e., useless) once the entries made in it are recorded in the books of account.

Writing up of the Memorandum Book:

     In the memorandum book, the transactions are recorded daily in the order in which they take place. Entries in this book are made from the original records or documents, such as the invoices, receipts, vouchers, debit note, credit notes, etc. It may be noted that there are no rules required to be observed for recording the transactions in this book. All that is necessary is to see that all the transactions are recorded briefly in the order in which they take place.

Nature of the Memorandum Book:

     The waste book is only a memorandum book, and not a book of accounts. As such, it does not form part of the double-entry system. That is, it does not contain either the debit entry or the credit entry for any transaction.

Use of the Memorandum Book:

     The memorandum book facilitates the writing up of the books of accounts. That is, the entries made in the memorandum book form the basis of entries made in the books of accounts. The entries in the books of account, i.e., in the books of original or first entry, viz., the single journal or the several subsidiary books, are made from the entries made in the memorandum book.

Specimen of the Memorandum Book:

     The following is the specimen of the memorandum book:
     
  1992 January 1   Commenced business with cash                                      Rs.10,000.
  1992 January 1    Purchased goods for cash                                                 Rs.3,000 
  1992 January 1    Opened a bank account with                                           Rs.2,000
  1992 January 1    Purchased stationery Rs.100
  1992 January 1    Purchased furniture Rs.1,000
  1992 January 1    Sold goods to A on credit Rs.2,000
  1992 January 2    Purchased goods from B on                                               credit Rs.2,000
  1992 January 2    Sold goods for cash Rs.1,000
  1992 January 2    Paid for postage Rs.20
  1992 January 2    Took loan from C Rs.1,500
  1992 January 3    Paid rent Rs.300
  1992 January 3    Withdrew from bank Rs.800
  1992 January 3    Received from A on account                                             Rs.500
  1992 January 3    Paid commission by cheque                                            Rs.200

Differences between the Memorandum Book and the Books of Accounts:

     The memorandum book is quite different from the books of accounts. There are number of differences between the Memorandum Book and the Books of Accounts. The main differences between them are:

     1. The memorandum book does not form part of the double-entry system, whereas the books of accounts form part of the double-entry system.

    2. As the memorandum book does not form part of the double-entry system, it does not contain either the debit entry or the credit entry for any transaction. On the other hand, as the books of accounts form part of the double-entry system, they contain the debit and credit entries for every transaction.

     3. There are no rules for recording the transactions in the memorandum book. But there are certain specific rules or principles, known as the principles of double-entry, for recording the transactions in the books of accounts.

     4. The memorandum book is written up from original records or documents, such as the invoices, vouchers, receipts, etc. But the books of accounts are written up from the memorandum book. (Of course, in business houses where the memorandum book is not maintained, the books of accounts, viz., the journal or the subsidiary books, are written up from the original records).

     5. The memorandum book is just a rough book or waste book, whereas the books of accounts are the proper and permanent records of business transactions.

     6. The maintenance of the memorandum book is not necessary for every business. But the maintenance of the books of accounts is necessary for every business.

2. Modern Method, Practical Method or English Method of Book-Keeping:

2. Modern Method, Practical Method or English Method of Book-Keeping:

     The conventional or theoretical method of book-keeping was found inconvenient and unsuitable for big concerns with a large volume of transactions. So, to serve the needs of big concerns, a new method of book-keeping has been developed later on. The new method of book-keeping is known as the modern method, practical method or english method of book-keeping.

     Under the modern method or practical method of book-keeping, the book-keeping work consists of the following phases or steps:

     1. Recording of the transactions in a number of subsidiary books or special journals:
     First, the various transactions of the business are recorded in a number of books of original entry or first entry called the subsidiary books or special journals, as and when they take place.

     2. Preparation of ledger accounts:
     Secondly, the entries in the various subsidiary books are posted or transferred to the appropriate accounts in the book of second entry or final entry called the Ledger, periodically, i.e., either weekly, fortnightly, monthly or quarterly, depending upon the convenience of the business, to ascertain the exact position of each account on any particular date. That is, secondly, from the entries in the various subsidiary books, necessary accounts are prepared in the ledger.

     3. Preparation of final accounts:
     Finally, after checking the arithmetical accuracy of the entries in the ledger accounts, through the preparation of a trial balance, from the ledger account balances found in the trial balance, final accounts, viz., (1) the trading and profit and loss account and (2) the balance sheet, are prepared at the end of the accounting year. The trading and profit and loss account is prepared to know the net profit or net loss of the business for the accounting year. The balance sheet is prepared to know the financial position of the business as on the last day of the accounting year.

1. Conventional Method, Traditional Method or Theoretical Method of Book-Keeping:

1. Conventional Method, Traditional Method or Theoretical Method of Book-Keeping:

     Under the conventional or theoretical method of book-keeping, the book-keeping work consists of the following phases or steps:

    1. Recording of all the transactions in a single journal:
     First, all the transactions of the business are recorded in s single book of original entry, prime entry or first entry called the journal, General Journal or Ordinary Journal, as and when they take place. That is, first, all the transactions are journalised, or journal entries are passed for all the transactions of the business.

     2. Preparation of ledger accounts:
     Secondly, the entries in the single journal are posted or transferred to the appropriate accounts in the book of second or final entry called the Ledger, periodically, i.e., either weekly, fortnightly, monthly or quarterly, depending upon the convenience of the business, to ascertain the exact position of each account on any particular date. That is, secondly, from the entries in the journal, accounts are prepared in the ledger.

     3. Preparation of final accounts:
     Finally, after checking the arithmetical accuracy of the entries in the ledger accounts, through the preparation of a trial balance, from the ledger account balances found in the trial balance, final accounts, viz., (a) the trading and profit and loss account and (b) the balance sheet, are prepared at the end of the accounting year. The trading and profit and loss account is prepared to know the net profit or net loss of the business for the accounting year. The balance sheet is prepared to know the financial position of the business as on the last day of the accounting year.

Working of Book-Keeping Process:

Working of Book-Keeping Process:

     Under the double-entry system of book-keeping, the process of book-keeping can be carried out in any one of the two ways, depending upon the size of the business and the volume of transactions undertaken by the business. Those two ways are:

     1. Conventional method, traditional method or theoretical method of book-keeping.
     2. Modern method, practical method or English method of book-keeping.

     In the beginning, only the traditional or theoretical method of book-keeping was available to all concerns, small as well as big. But later on, the practical method of book-keeping was developed. So, today, both the theoretical and practical methods of book-keeping are available. The theoretical method of book-keeping is followed by small concerns, which have relatively less volume of transactions. Big concerns, which have a large volume of transactions, find the theoretical method quite inconvenient, and so, they follow the practical method of book-keeping.
   

Process Of Book-Keeping:

Process of Book-Keeping:

Introduction:
     The process of book-keeping can be compared to the construction of a three-storeyed building.

     In the construction of a three-storeyed building, first, the ground floor or the first storey is constructed. After the construction of the ground floor or the first storey, the first floor or the second storey is built. After the first floor or the second storey is built, after making quite sure that the foundation, the ground floor and the first floor are strong enough to support one more floor or storey, the top floor or the third storey is constructed.

     Similarly, in the process of book-keeping, first, the business transactions are recorded either in a single book of original entry or first entry called the journal, general journal or ordinary journal, or in many books of original or first entry called the subsidiary books or the special journals. After the transactions are recorded either in a single journal or in many subsidiary books, the entries in the journal or the subsidiary books are posted (i.e., transferred) to appropriate accounts in the book of second entry or final entry called the Ledger. After the ledger accounts are prepared, after making sure about the arithmetical accuracy of the entries in the ledger accounts, through the preparation of a trial balance, from the ledger balances found in the trial balance, two final accounts, viz., (a) the trading and profit and loss account and (b) the balance sheet, are prepared to know the net profit or the net loss of the business for the accounting year, and the financial position of the business as on the last day of the accounting year.

Alternative Rules of Debit and Credit:

Alternative Rules of Debit and Credit:

     American accountants have developed alternative rules of debit and credit for recording various transactions. They have classified the accounts into five categories, and laid down five sets of rules of debit and credit for the five categories of accounts.

     The five categories of accounts given by the American accountants are:

     1. Assets
     2. Liabilities
     3. Capital
     4. Incomes and Gains and
     5. Expenses and Losses

      The rules of debit and credit formulated by the American accountants for the above five categories of accounts are:

     1. In the case of Assets:
     The rule of debit and credit in the case of Assets is:

     "Debit increase in an asset & Credit decrease in an asset"

     The rule for debiting and crediting assets can be explained with the help of the following examples:

     1. Paid Bhaskar Rs.500
     In this case, the asset account involved is Cash Account. When the business pays cash to Bhaskar, the asset, i.e., cash, of the business decreases. As there is a decrease in the asset, i.e., cash, Cash Account should be credited.

     2. Bought furniture for Rs.500 from National Furniture Mart on credit.
     In this transaction the asset account involved is Furniture Account. When the business buys furniture, the asset, i.e., furniture of the business increases. As there is an increase in the asset, i.e., furniture, Furniture Account should be debited.

     2. In the case of Liabilities:
     The rule of debit and credit in the case of liabilities is:

     "Debit decrease in a liability, & Credit increase in a liability".

     The rule for debiting and crediting liabilities may be explained with the help of the following examples:

     1. Purchased goods for Rs.2000 from Murali on Credit.
     The liability account in this transaction is Murli's Account. (When goods are purchased from Murli on credit, Murli is the creditor of the business. So, Murli's account constitutes a liability account). When goods are purchased on credit from Murali, the liability of the business, i.e., the amount due to Murli's, increase. As there is an increase in the liability, i.e., in the amount due to Murli's, Murli's Account should be credited.

     2. Paid Murli Rs.1,000 on account.
     The liability account involved in this case in Murli's account. When the business pays Murli on account, the liability of the business, i.e., the amount due to Murli's, decreases. As there is a decrease in the liability, i.e., in the amount due to Murli's, Murli's Account should be debited.

     3. In the case of Capital:
     The rule of debit and credit in the case of Capital is:

     "Debit decrease in capital & Credit increase in capital"

     The rule for debiting and crediting capital may be explained with the help of the following examples:

     1. Rao commenced business with Rs.10.000.
     In this example, Rao is the proprietor of the business. So, Rao's Personal Account is Capital Account. When the proprietor commenced business with cash (i.e., when the business receives cash from the proprietor), there is an increase in the capital of the proprietor. As there is an increase in the proprietor's capital, his capital account should be credited.

     2. Rao withdrew cash of Rs.500 from Business for his personal use.
     In this example, as the proprietor withdraws cash from the business, his capital account is involved. When the proprietor withdraws cash from the business (i.e., when the business pays cash to the proprietor), there is a decrease in the proprietor's capital. As there is a decrease in the proprietor's capital, his Capital Account (or his Drawings Account) should be debited.
    
     4. In the case of Incomes and Gains:
     The rule of debit and credit in the case of Incomes and Gains is:

     "Debit decrease in an income & Credit increase in an income"

     The rule for debiting and crediting incomes and gains may be explained with the help of the following examples.

     1. Received commission Rs.100.
     Commission received by the business is an income. So, Commission account is an income account. When the business receives commission, there is an increase in the income, i.e., commission. As there is an increase in the income, i.e., commission, Commission Account should be credited.

     2. Out of commission received, Rs.20 has to be carried forward to next year.
     In this case, the income account involved is Commission Account. When a portion of commission received is carried forward to next year, there is a decrease in the income, i.e., commission. As there is a decrease in the income, i.e., commission, Commission Account should be debited.

     5. In the case of Expenses and Losses:
     The rule of debit and credit in the case of expenses and losses is:

     "Debit increase in an expense & Credit decrease in an expense"

     The rule for debiting and crediting expenses and losses can be explained with the help of the following examples:

     1. Paid rent Rs.200
     Rent paid by the business is an expense. So, Rent Account is an expense account. When the business pays rent, there is an increase in the expense, i.e., rent. As there is an increase in the expense, i.e., rent, Rent Account should be debited.

     2. Out of rent paid, Rs.50 has to be carried forward to next year.
     In this transaction, the expense account involved is Rent Account. When a portion of rent paid is carried forward to next year, there is a decrease in the expense, i.e., rent. As there is a decrease in the expense, i.e., Rent Account should be credited.

     The alternative rules for debiting and crediting various accounts may be summarised as follows:

Assets: "Debit increase in an asset & Credit 
                   decrease in an asset"

Liabilities: "Debit decrease in a liability & Credit
                          increase in a liability"

Capital: "Debit decrease in capital & Credit increase
                    in capital"

Incomes and Gains: "Debit decrease in an income                                               & Credit increase in an 
                                            income"

Expenses and Losses: "Debit increase in an 
                                              expense & Credit decrease 
                                               in an expense"





     

Summarised Rules Applied to Three Kinds of Accounts:

Summarised Rules Applied to Three Kinds of Accounts:

     The rules for debiting and crediting various accounts may be summarised as follows:

1. Personal Accounts:

     Debit the receiver & Credit the giver.

2. Real, Asset or Property Accounts:

     Debit what comes in & Credit what goes out.

3. Nominal or Fictitious Accounts:

     Debit expenses and losses & Credit incomes and gains.

General Rules Applied to Three Kinds of Accounts: 3. Nominal or Fictitious Accounts:

General Rules Applied to Three Kinds of Accounts: 3. Nominal or Fictitious Accounts:

Nominal or Fictitious Accounts:

     Nominal accounts may be expenses and losses, or incomes and gains for the business. Therefore, the account of an expense or loss of the business should be debited, and the account of an income or gain of the business should be credited.

     The rule for debiting and crediting nominal accounts may be explained with the help of the following examples:

     1. Paid rent Rs.100.
     In this transaction, the nominal account involved is Rent Account. Rent paid is an expense for the business.

     2. Paid salary Rs.500.
     Here, the nominal account involved is Salary Account. Salary paid is an expense for the business. Therefore, Salary Account has to be debited.

     3. Received commission Rs.100.
     In this transaction, the nominal account involved is Commission Account. Commission received is an income for the business. So, Commission Account has to be credited.

     4. Received interest on bank deposit Rs.100.
     The nominal account involved in this transaction is Interest Account. Interest received is an income for the business. So, Interest Account has to be credited.

General Rules Applied to Three Kinds of Accounts: 2. Real or Asset Accounts.

General Rules Applied to Three Kinds of Accounts: 2. Real or Asset Accounts:

Real or Asset Accounts:

     An asset is a lifeless thing. As such, it cannot receive or give any benefit. It can only come into the business or go out of the business. So, the account of an asset which comes into the business should be debited, and the account of an asset which goes out of the business should be credited.

     The rule for debiting and crediting real accounts may be explained with the help of the following examples:

     1. Received interest Rs.100.
     In this transaction, the asset account involved is Cash Account. Cash comes into the business. So, Cash Account should be debited.

     2. Paid Bhaskar Rs.200.
     In this transaction, the asset account involved is Cash Account. Cash goes out of the business. So, Cash Account should be credited.

     3. Bought furniture from Imran & Co. on credit Rs.500.
     The asset account involved in this transaction is Furniture Account. Furniture comes into the business. Therefore, Furniture Account should be debited.

     4. Sold machinery to Raj Rs.5,000
     The asset account involved in this transaction is Machinery Account. Machinery goes out of the business. So, Machinery Account should be credited.

General rules applied to three kinds of accounts: 1. Personal Accounts:

General Rules Applied To Three Kinds of Accounts:

     The general rule for debit and credit, as applied to the three kinds of accounts, is as follows:

Personal Accounts:
     A person, who enters into a business transaction with a business, either receives some benefit from the business or gives some benefit to the business (i.e., he either receives the benefit of the transaction or gives the benefit of the transaction). As such, the account of the person who receives the benefit of the transaction from the business should be debited, and the account of the person who gives the benefit of the transaction to the business should be credited. In other words, the account of the person who receives the benefit of the transaction should be debited, and the account of the person who gives the benefit of the transaction should be credited.

     The rule for debiting and crediting personal accounts can be explained with the help of the following examples:

     1. Received from Rakesh Rs.2,000.
     In this transaction, the personal account involved is Ramesh's account. The personal account of Rakesh gives the benefit of the transaction, i.e., cash. So, Ramesh's Personal Account has to be credited.

     2. Paid Ganesh Rs.1,000.
     The personal account involved in this transaction is Ganesh's Account. The personal account of Ganesh receives the benefit of the transaction, i.e., cash. So, Ganesh's Personal Account has to be debited.

     3. Purchased goods from David on credit Rs.500.
     Here, the personal account involved is David's Account. The personal account of David gives the benefit of the transaction, i.e., goods. Therefore, David's Personal Account has to be credited.

     4. Sold goods to Henry on credit Rs.600.
     In this transaction, the personal account involved is Henry's Account. The personal account of Henry receives the benefit of the transaction, i.e., goods. So, Henry's Personal Account has to be debited.

Rules for Recording Business Transactions Under the Double-Entry System:

Rules for Recording Business Transactions Under the Double-Entry System:

     As stated earlier, each transaction affects two accounts. One account receives the benefit of the transaction, and the other account gives the benefit of the transaction. So, for recording each transaction completely under the double-entry system of book-keeping, the account which receives the benefit of the transaction must be debited, and the account which gives the benefit of the transaction must be credited. This is the golden, fundamental or general rule of the double-entry system of book-keeping.

     No doubt, the golden, fundamental or general rule of the double-entry system for debit and credit is that the account that receives the benefit of the transaction should be debited and the account that gives the benefit of the transaction should be credited. However, as there are three classes of accounts, the general rule for debit and credit is adjusted in accordance with the types of accounts, and three sets of rules are laid down for the three classes of accounts.

https://docs.google.com/spreadsheets/d/18x8CqVh7kaKRD7oaoRl-y8F5kpUmZgFkIl3EMBx4dCI/edit?usp=drivesdk

https://docs.google.com/spreadsheets/d/18x8CqVh7kaKRD7oaoRl-y8F5kpUmZgFkIl3EMBx4dCI/edit?usp=drivesdk

Differences between Personal Accounts and Nominal Accounts:

Differences between Personal Accounts and Nominal Accounts:

     The main differences between personal accounts and nominal accounts are:

     1. Personal accounts are accounts of persons with whom a business deals. But nominal accounts are accounts of expenses and losses, and incomes and gains of a business.

     2. At the end of every accounting year, personal accounts are balanced, and their balances are carried from one year to another. On the other hand, at the end of every year, nominal accounts are not balanced, but are closed by transfer to trading account or profit and loss account.

     

     3. As the balances of personal accounts are carried from one year to another, real accounts exist year after year. But as the nominal accounts are closed at the end of every year, they do not exist year after year.

     4. Personal accounts are items of balance sheet, whereas nominal accounts are items of trading account or profit and loss account.

     5. Personal accounts may appear either on the assets side or on the liabilities side of the balance sheet. But real accounts will appear on the assets side of the balance sheet.

Differences between Real Accounts and Nominal Accounts:

Differences between Real Accounts and Nominal Accounts:

     The main differences between real accounts and nominal accounts are:

     1. Real accounts are accounts of properties or assets of a business. But nominal accounts are accounts of expenses and losses, and incomes and gains of a business.

     2. Real accounts represent something tangible, concrete or real (i.e., something which can be seen or felt). But nominal accounts do not represent anything tangible or real.

     3. Real accounts, generally, show debit balances, whereas nominal accounts may show either debit balances or credit balances.

    4. At the end of every accounting year, real accounts (i.e., the accounts of properties or assets) are balanced, and their balances are carried from one year to another. On the other hand, at the end of every accounting year, nominal accounts are not balanced, but are closed by transfer to trading account or profit and loss account.

     5. As the balances of real accounts are carried from one year to another, real accounts exists year after year. But as the nominal accounts are closed at the end of every year, they do not exist year after year.

     6. Real accounts are items of balance sheet, whereas nominal accounts are items of trading account or profit and loss account.

Differences between Personal Accounts and Real Accounts

Differences between Personal Accounts and Real Accounts:

     The main differences between Personal accounts and Real accounts are:

     1. Personal accounts are accounts of persons with whom a business deals. On the other hand, real accounts are accounts of properties, assets or things in which or with which a business deals.

     2. Personal accounts may represent assets or liabilities. But real accounts represent assets.

     3. Personal accounts may show debit balances or credit balances, whereas real accounts generally show debit balances.

Nominal or Fictitious Accounts:

Nominal or Fictitious Accounts:

     Nominal or Fictitious accounts are accounts of the expenses and losses which a concern incurs, and incomes and gains which a concern earns in the course of its business. These accounts are called nominal accounts, because they do not really exist and they cannot be seen or touched. They are not represented in any type of tangible or visible things or assets. They exist only in names. Nominal accounts may be:

     (a) Revenue accounts or incomes accounts, i.e., accounts of revenues, incomes, gains or profits, such as commission earned, interest received, discount received, etc.

     (b) Expenses accounts, i.e., accounts of expenses or losses, such as salaries paid, rent paid, discount allowed, bad debts, etc.

Real Asset or Property Accounts

Real Asset or Property Accounts:

     Real accounts are accounts of properties, assets or things owned by a concern and in with which the business is carried on. Real or asset accounts may be:

     (a) Accounts of tangible assets (i.e., assets which have physical existence and which can be seen, touched, felt, bought and sold), such as goods account, cash account, furniture account, vehicles account, machinery account, buildings account, land account, etc.

     (b) Accounts of intangible assets (i.e., assets which do not have physical existence and which cannot be seen and touched, but can be bought and sold), such as goodwill account, patent rights account, copy rights account and trade marks account.

Personal Accounts:

Personal Accounts:

     Personal Accounts are accounts of persons with whom a concern carries on business. Personal accounts may be:

     (a) Accounts of natural or physical persons,  i.e., accounts of human beings, e.g., Ram's Account, Sitaram's Account, Kamakura's Account, Kothandarsm's Account, Balaam's Account, Anantharsm's Account, Sita's Account, Janaki's Account, Devi's Account, Sitadevi's Account, etc.

     (b) Accounts of artificial or legal persons, I.e., accounts of partnership firms, companies, clubs, associations, banks, Government institutions, schools and colleges, etc., the Canara Trading Company's Account, the National Trading Company Ltd's Account, Aloysius College's Account, National School's Account, Bharat Bank's Account, Income-Tax Department's Account, Karnataka Electricity Board's Account, etc.

     (c) Representative personal accounts, i.e., accrued expenses account, outstanding expenses account, prepaid expenses account, accrued incomes account, outstanding incomes account and incomes received in advance account, e.g., accrued debenture interest account, outstanding salaries account, prepaid insurance account, accrued fixed deposit interest account, outstanding bank interest account, rent received in advance account, etc. These accounts are called representative personal accounts, as they represent certain persons behind them. For instance, outstanding wages account represents all those workers to whom wages are to be paid. Prepaid rent accounts represents the account of the landlord to whom rent has been paid in advance.

Classification of Accounts or Kinds of Accounts:

Classification of Accounts or Kinds of Accounts:

     Before we consider the classification of accounts into different kinds, let us understand why accounts are classified into different kinds. Accounts are classified into different kinds for the following reasons:

     (a) The debit and credit aspects of a transaction (i.e., the accounts to be debited and credited in a transaction) can be easily determined, if the accounts involved in the transaction are classified into different kinds according to their nature.

     (b) The nature of the balance of an account can be understood easily, if the accounts involved in a transaction are classified into different classes according to their nature.

     (c) Different accounts provide different kinds of information. For example, personal accounts provide information about the amounts due to the creditors or the amounts due from the debtors. Real accounts provide information about the values of the assets held by a business. Nominal accounts provide information about the amounts of various items of expenses and incomes. So, to get the various kinds of information, accounts are required to be classified into different kinds.

     (d) Classification of accounts into different kinds helps a business to divide the ledger into different ledgers and maintain different types of accounts in different ledgers. This (i.e., the classification of accounts into different kinds and the maintenance of different classes of accounts in different ledgers) will help the business to locate an account easily.

     It has already been stated that every transaction affects two accounts, and under the double-entry system of book-keeping, every transaction has to be recorded in two accounts. Before we see how each transaction is recorded in accounts, let us consider the various kinds of accounts.

     Every business concern deals with other persons, firms or companies. For instance, a concern may buy goods from other parties or sell goods to other parties on credit. Again, it may borrow money from other parties or lend money to other parties.

     Secondly, a business concern has certain properties or assets, such as goods, cash , furniture, buildings, etc. in which or with which the business is carried on.

     Thirdly, it may incur certain expenses, such as salaries, rent, advertisement, stationery, etc., and may earn some incomes, such as commission, interest, etc. in the course of the business.

     From the above discussion, it is clear that every business concern has three classes of transactions viz., (1) transactions relating to persons, (2) transactions relating to assets and (3) transactions relating to expenses and incomes. So, if a concern likes to keep a complete record all the transactions, it must must maintain accounts for all these three classes of transactions.

     The accounts maintained by a business concern for these three classes of transactions may be divided into two broad classes, viz., 

     1. Personal Accounts and
     2. Impersonal Accounts.

     The impersonal accounts may be sub-divided into two classes, viz., 

     (1) Real Asset or Property Accounts and
     (2) Nominal or Fictitious Accounts.

     Therefore, there are three classes of accounts, viz.,

     1. Personal Accounts
     2. Real, Asset or Property Accounts and
     3. Nominal or Fictitious Accounts.

38. Carried Forward, 39. Brought Forward, 40. Carried Down and 41. Brought Down

38.Carried Forward:

     The term 'carried forward' or its abbreviation 'c/f' is used at the foot (i.e., bottom) of a page (of a journal or a ledger) to indicate that the total amount at the foot of that page has been carried Forward to the head (i.e., top) of the next page.

39. Brought Forward:

     The term 'brought forward' or its abbreviation 'b/f' is used at the head of a page (of a journal or ledger) to indicate that the total amount at the head of that page has been brought Forward from the foot of the previous page.

40. Carried Down:

     The term 'carried down' or its abbreviation 'b/d'is written in a ledger account at the time of its closing to indicate that the balance in that account has been carried Down to the next period.

41. Brought Down:

     The term 'brought down' or its abbreviation 'b/d' is written in a ledger account at the time of its opening to indicate that the opening balance in that account has been brought down from the previous period.

32. Ledger Entry, 33. Posting, 34. Voucher, 35. Receipt, 36. Folio, 37. Folioing or Paging

32. Ledger Entry:

     An entry in the ledger is called a 'ledger entry'.

33. Posting:

     Posting or ledger posting is the process of entering in the ledger, the information already recorded in the journal or in any of the subsidiary books. In other words, it is the transfer of an entry from the journal or from a subsidiary book to the ledger. It is made periodically, i.e., weekly, fortnightly or monthly, depending upon the convenience of the business concern.

34. Voucher:

     Voucher refers to any written document in support of a financial transaction. It is a proof that a particular transaction has taken place for the value stated therein (i.e., in the voucher).

35. Receipt:

     A receipt is a written acknowledgement of the receipt of money or the acceptance of the delivery of goods given by the receiver of money or goods to the giver of money or goods.

36. Folio:
     
     Folio means the page of a journal or a ledger.

37. Folioing or Paging:

     Entering the folio (i.e., the page) number of the journal in the ledger, and the folio (i.e., the page) number of the ledger in the journal is called 'folioing'.

     Folioing serves as cross reference between the journal and the ledger, and helps in tracing the entries from the journal to the ledger or from the ledger to the journal. Further, it helps the clerk engaged in posting to see that no entry in the journal remains unposted.