In the last blog of this series, we understood the meaning of accounting and accountancy. Now let us understand the principles of accounting. These principles will help you to pass journal entries. To understand the principles, you first need to understand the types of accounts.

Types of Accounts- all the transactions related to any business can be classified into the following types:

1. Personal Account - accounts of any person or business comes under the personal account, for example, an account of Ram or Shyam, an account of M/S Dhanraj and Sons, etc. 
2. Real Account - accounts of things come under the real account. For eg. cash a/c, furniture a/c, stock a/c, etc.
3. Nominal Account - accounts of all the expenses and incomes, come under the nominal account. For eg. electricity expenses, salary paid, discount given/allowed, discount received, etc. or we can also say that those accounts that do not come under the above two categories, will come under the nominal account.

Rules For Passing Journal Entries:

1. For Personal Account: Debit the receiver and Credit the giver. For eg. Ram is giving Rs. 100 to Virendra, here Virendra's account will be debited and Ram's account will be credited with Rs. 100.
2. For Real Account: Debit what comes in and Credit what goes out. For eg. furniture purchased for Rs. 5000. Here, thing cash is going out and furniture is coming in. So Furniture's account will be debited and cash's account will be credited with Rs. 5000.
3. For Nominal Account: Debit all expenses and losses and credit all incomes and gains. for eg. 1. paid electricity bill Rs. 500. Here, an expense is being paid and things cash is going out. So debit and expense and credit what goes out. The entry would be electricity expenses a/c debit, cash a/c credit with Rs. 500. Eg. 2. interest received on the amount deposited in the bank account Rs. 200. here interest is the name of the income that is received directly in the bank account. So, cash is received in the form of a bank balance and income is earned. Debit what comes in and credit all incomes. The entry will be bank account debit, interest account credit. 

There is also a concept of contra entry. When there is too much cash in the business, the businessman goes and deposits that amount in the bank, or when there is a shortage he withdraws the amount from the bank and brings and keeps it in the place of business. These kinds of transactions are known as contra entries. 

Hope you will find it helpful to manage your small business and keep the track of all the transactions.