Classification of Accounts
In accounting, the accounts are classified using one of two approaches – modern approach or traditional approach. We shall describe modern approach first because this approach of classification of accounts is used in almost every advanced country. The use of traditional approach is very limited. Modern approach According to modern approach, the accounts are classified as asset accounts, liability accounts, capital or owner’s equity accounts, withdrawal accounts, revenue/income accounts and expense accounts. 1. Asset accounts: Assets are things or items of value owned by a business and are usually divided into tangible or intangible. Tangible assets are physical items such as building, machinery, inventories, receivables, cash, prepaid expenses and advance payments to other parties. Intangible assets normally include non-physical items and rights. Examples of intangible assets include goodwill, trademarks, copyrights, patent rights and brand recognition etc. A separate account f