Question

Classify the following accounts according to modern approach-1. Building 5. Drawings 9. Rent Paid 2 Cash 6. Debtors 10. Commission paid 3. Outstanding Exp. 7. Capital 11. Purchases 4. Creditors B. Sales 12. Salary​

Answer 1

ANSWER :

According to Modern Approach or American Approach of accounts classification, there are six types of accounts namely : Asset Account, Liability Account, Capital Account, Withdrawal Account, Revenue Account and Expenses Account.

$\: \: \: \: \: \: \: \:$✠ The given accounts are classified according to Modern Approach or American Approach as under :-

• 1. Building ➺ Asset Account

• 2. Cash ➺ Asset Account

• 3. Outstanding Expenses ➺Liability Account

• 4. Creditors ➺ Liability Account

• 5. Drawings ➺ Withdrawal Account

• 6. Debtors ➺ Asset Account

• 7. Capital ➺ Capital Account

• 8. Sales ➺ Revenue Account

• 9. Rent Paid ➺ Expenses Account

• 10. Commission paid ➺ Expenses Account

• 11. Purchases ➺ Expenses Account

• 12. Salary ➺ Expenses Account (Being considered as Salary Paid Account)

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MORE TO KNOW :

❒ The six types of accounts under American Approach or Modern Approach are explained below :-

• [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 amount with which the business is started. It is the account of the owner who invests money in the business as capital and hence owner's Capital is included in this head of account.

• [4] Withdrawal Account : Withdrawal account is the account prepared to record the transaction of goods or money withdrawn by the proprietor from the business for his personal use or any private purpose. It includes Drawing account.

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

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

Answer 2

Answer :

According to modern approach of classification, all the accounts can be classified into the following five accounts :-

• Assets
• Liability
• Capital
• Expense
• Revenue

Required classification of accounts :-

1. Building — Asset
2. Drawings — Capital
3. Rent paid — Expense
4. Cash — Asset
5. Debtors — Assets
6. Commission paid — Expense
7. Outstanding expense — Liability
8. Capital — Capital
9. Purchases — Expenses
10. Creditors — Liability
11. Sales — Revenue
12. Salary — Revenue

Additional Information :

Assets ➝ All the economic resources which are owned and controlled by the business and helps the business to earn revenue or income in future are called assets.

Capital ➝ Capital is the account of proprietor in the business. It is the amount which is invested by the proprietor in his / her business.

Liabilities ➝ Liabilities are the amounts owed or payable by the business to it's creditors.

Expenses ➝ All the losses and expenditure of the business are classified as expenses. It is the cost incurred to earn revenue.

Revenue ➝ Revenue is the total inflow of cash in the business, i.e. expenses + profit.