Question

16. Classify the following accounts under American System of Accounting
a Capital Account
g. Vehicle A/C
b. Commission Receivable Ne
h. Outstanding Expenses Alc
e Debtors Ne
i. Salary. Alc
d. Cash A/C
j. Goodwill Alc
e. Bank
k. Discount Received Alc:
f. Building Me
1. Sales A/C​

Answer 1

ANSWER :

❖ Classification of the given accounts under American Approach :-

• [a] Capital A/C ➯ Capital Account.

• [b] Vehicle A/C ➯ Assets Account.

• [c] Commission Receivable A/C ➯ Assets Account.

• [d] Outstanding Expenses A/C ➯ Liabilities Account.

• [e] Debtors A/C ➯ Assets Account.

• [f] Salary A/C ➯ Expenses Account.

• [g] Cash A/C ➯ Assets Account.

• [h] Goodwill A/C ➯ Assets Account.

• [i] Bank A/C ➯ Assets Account.

• [j] Discount Received A/C ➯ Revenue Account.

• [k] Building A/C ➯ Assets Account.

• [l] Sales A/C ➯ Revenue Account.

MORE TO KNOW :

❖ Under Modern Approach or American Approach accounts are classified into five main categories :-

• [1] Assets Account : Assets account are the accounts of assets and properties of the business entity. These include land, building, plant, machinery, patents, cash in hand, cash at bank, debtors etc.

• [2] Liabilities Account : Liabilities accounts are the accounts pertaining to the liabilities of the business entity. These include lenders, creditors, outstanding expenses, bank overdraft etc.

• [3] Capital Account : Capital is the amounth with which the business is started. It is the account of the owner who invests money in the business as capital.

• [4] Revenue Accounts : Revenue accounts are the accounts of income and gains. These include sales, discount received, interest received, commission received etc.

• [5] Expense Accounts : Expenses accounts are the accounts of expenses incurred and losses sufferef by the entity. These include purchases. wages paid, rent paid, depreciation charged etc.