enumerate the rule of debit and credit modern American approach
Answers
Answer:
Rules of Debit and Credit under the Modern Approach:
Asset Accounts Debit the increase; Credit the decrease
Liabilities Accounts Credit the Increase; Debit the decrease
Capital Accounts Credit the Increase; Debit the decrease
Revenue Accounts Credit the Increase; Debit the decrease
Expense Accounts Debit the increase; Credit the decrease
Solved Example on Modern Approach of Classification
Q: Analyze the following transactions and also show their effects on the assets and liabilities using the Modern Approach to Accounting.
Commenced business with cash ₹100000
Paid rent ₹1000
Received commission ₹500
Introduced additional capital ₹10000 in cash and 5000 in goods.
Purchased goods ₹20000 from B
Sold goods costing ₹10000 at a profit of 25% on the cost
Purchased office furniture ₹15000
Paid salary in advance ₹1000
Ans:
The analysis of each transaction is given below. Their effect on the Assets and Liabilities is also shown in the form of Accounting Equation:
Cash is increasing and thus, cash should be debited. Also, Capital is increasing, hence, Capital should be credited.
Rent is paid. Therefore cash is decreasing. Rent is an expense. Directly deduct rent from Capital. Therefore, capital should be debited and cash should be credited.
Commission is an income. Thus, add it to the Capital. Also, cash will increase.
Cash and goods are coming in. Also, Capital is increasing. Hence, cash and goods should be debited and Capital should be credited.
Goods are coming in. Thus, they are increasing. Therefore, goods should be debited. B has become a creditor.
Goods are going out thus, credit goods. Cash is coming in thus, cash must be debited. Also, add the profit of ₹ 2500 to Capital.
Cash is decreasing while the furniture is increasing. Therefore, cash must be credited and furniture should be debited.
Salary paid in advance is a current asset. Cash is decreasing so cash must be credited.
Answer:
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