 Meaning = A small part of the total whole

 Synonyms » constituent, part, building block,

component, ingredient, factor, aspect

• An Element in accounting • Basic Accounting Process

An element for the purpose of accounting is that aspect relating
• Consignment Accounting
to which we wish to find/know information.
• Bank Reconciliation
Each element in accounting is identified as an account or an
Statement
accounting head.
• Partnership Accounts
» Some examples of accounting • Final Accounts
elements
We wish to know
 The amount of capital invested in the business.
• Capital is an element. — We identify it as Capital a/c.
 The value of Furniture with us in the business.
• Furniture is an element. — We identify it as Furniture
Top of Form
a/c.
 The amount of expenditure on account of salaries.
• Salaries is an element. — We identify it as Salaries a/c.
 The amount due to us from Mrs. Vimla.
• Mrs. Vimla is an element. — We identify it as Mrs.
Vimla's a/c. Bottom of Form
 The amount we owe the wholesaler Mr. Rathod. Top of Form
• Mr. Rathod is an element. — We identify it as Mr.
Rathod's a/c.
 The amount available in the bank.
• Bank is an element. — We identify it as Bank a/c.
 The value of sales made by us.
Bottom of Form
• Sales is an element. — We identify it as Sales a/c.
 This list can be endless...........

• Process Costing
Types/Kinds of • Standard Costing
(Variance Analysis)
Accounts • Funds Flow Cash Flow

All the accounting heads used in an organisational accounting

system are divided into three kinds/types.
• Permutations Combinations
• Personal Accounts • Probability
• Theory of Expectation
The elements or accounts which represent persons and (Random Variable)
organisations.

• Real Accounts
The elements or accounts which represent assets
In the initial stages of learning accounting, we can assume real • CA CPT
accounts to be those related to tangible aspects. • CA PE-II
• CA PCC
» Tangible/Touchable • CA Final
• CWA Foundation
Capable of being perceived by the senses or the mind; • CWA Inter
especially capable of being handled or touched or felt. • CWA Final
There are assets which are intangible like the organisations • CS Foundation
Goodwill. • CS Inter
[At this stage of the learning process, please ignore the presence • CS Final
of such assets.]

• Nominal Accounts
The elements or accounts which represent expenses, losses,
incomes, gains.

• An Account should be one of

the three
Any element or account used in an organisational accounting
system should be one of these.
Thus, we can say that if an account is not real or personal it
should be a nominal account.
Therefore we may also interpret
 Nominal accounts as, the accounts other than Personal
and Real accounts
 Real accounts as, the accounts other than Personal and
Nominal accounts
 Personal accounts as, the accounts other than Real and
Nominal accounts

Types/Kinds of Accounts in
"Capital + Liabilities =
Assets"
Consider the accounting equation relating to an organisation at ,
at any stage
Capital + Liabilities = Assets
1,00,000 + Mr. Shyam = Cash (13,000) + Furniture
 Rao (5,000) (25,000) + Stock (5,000)
Bank (60,000)
+ M/s Bharat & Co (2,000)
Notice that the assets side is made up of Real a/c's and the
Liabilities side is made up of Personal a/c's.
 Capital a/c represents the owner of the business and
therefore is a Personal account.
 All other liabilities imply the amounts we owe to others
(persons or organisations) and thus are personal
accounts.

How many
Elements/Accounting-Heads
are used in accounting?
The number of elements i.e. accounting elements used for the
purpose of accounting for an organisation is not a static figure.
It is dependent on the amount and nature of information needed
by the organisation.
Where the organisation needs less detail, it may consider all the
expenses as a single element called expenses (i.e. Expenses a/c).
Where the organisation feels that it needs greater detail with
regard to expenses, it may sub divide it into smaller elements as
Salaries a/c, Rent a/c, Telephone Charges a/c, Miscellaneous
Expenses a/c. All these together would form the total
expenditure of the organisation.
We interpret the number of elements used for the purpose of
accounting as "the number of elements into which an
organisation is divided for the purpose of accounting". This is
dependent on the amount of information that an organisation
needs.
Greater the information needed, greater the number of
accounting heads i.e. the number of elements into which the
organisation is divided.

• The more the information we need,

The more the accounting heads we have to
maintain.
(Or)
• The more the information we need,
 The more the number of elements into which we
need to divide the organisational accounting.

Minimum Accounting Heads

in an Accounting System
Whatever may be the number of accounting heads/elements an
organisational accounting is divided into, it should/will contain
all the three types of accounts i.e. Real a/c's, Nominal a/c's and
Personal a/c's.
Where the information needed by the organisation is very
minimal, it can account for the transactions relating to its
business with a minimum of four accounting heads.

• Assets and Liabilities

» Assets a/c
All the assets whatever they may be shall be considered under a
single head named Assets a/c
» Liabilities a/c
All liabilities shall be considered under a single head Liabilities
a/c (which includes capital).

• Incomes/Gains and
Expenses/Losses
Every organisation has to deal with incomes/gains and
expenses/losses.
» Expenses/Losses a/c
All the expenses/losses whatever they may be are considered
under a single head Expenses/Losses a/c.
» Incomes/Gains a/c
All the incomes/gains whatever they may be are considered
under a single head Incomes/Gains a/c.

• Minimum Five Account

Heads
The liabilities are acquired from two sources owners and others.
The capital acquired from the owners takes the total risk in the
business and is different in characteristic from the capital
acquired from others.
Thus to have a clear and better understanding/information
regarding liabilities, the Liabilities a/c is replaced by two
accounts: Capital a/c and Liabilities a/c. [The more the
information we need the more the accounting heads we have to
maintain]
Therefore, the minimum accounting heads to be maintained
would be 5 i.e. Capital a/c, Liabilities a/c, Assets a/c,
Expenses/Losses a/c, Incomes/Gains a/c.

Elements effected by a
transaction
Your ability in accounting»is Identifying
directly proportional to your
ability in analysing a transaction and identifying the two
Account
elements type
affected by
accounting equation).
the transaction (without considering the

After identifying the two elements affected by the transaction

we identify the nature/type of the two elements i.e. whether the
elements affected are real, personal or nominal accounts.
» Illustration :
Considering the same example (as in the previous page) of
business transactions relating to the business of Mr. Oberoi .
1. The business is proposed to be
started.
There are no elements affected by this transaction since
it is not a transaction to be taken into account based on
the "Money Measurement Concept".
2. Started Business with a Capital of
Rs. 1,00,000.
Capital and Cash are the two elements affected by this
transaction. Since capital is being brought into the
business in cash, the value of Capital increases by Rs.
1,00,000 and the value of cash also increases by Rs.
1,00,000.
Capital a/c Cash a/c