Question

Explain the types of Accounts and their rules for debit and credit

Answer 1

Answer:

Trading and profit & loss account

Debit what comes in Credit what goes out

Balance Sheet

Debit all expense and losses Credit all incomes and gains

Answer 2

ANSWER :

Accounts are classified on the basis of two approaches namely, English Approach or Traditional Approach and American Approach or Modern Approach.

❒ The classification of Accounts and rules for Debit and Credit under English Approach or Traditional Approach are as follows :-

[1] Personal Accounts :

• Accounts heads pertaining to persons, firms, companies, organizations etc. are called Personal Accounts. It includes the accounts such as Ram's A/C, Gauhati Commerce College A/C etc.

❍ Rules for Debit and Credit :

• Debit is the Receiver of the benefit.

• Credit is the Giver of the benefit.

[2] Real Accounts :

• Accounts heads recording transactions relating to tangible things are known as Real Accounts. It includes the accounts of Machinery A/C, Cash A/C, Building A/C, Bank A/C etc.

❍ Rules for Debit and Credit :-

• Debit what Comes in.

• Credit what Goes out.

[3] Nominal Accounts :

• Accounts heads recoding transactions relating to losses, expenses, incomes and gains are known as Nominal Accounts. It includes Wages A/C, Rent A/C, Salaries A/C, Miscellaneous Expense A/C etc.

❍ Rules for Debit and Credit :-

• Debit all Expenses and Losses.

• Credit all Incomes and Gains.

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❒ The classification of Accounts and rules for Debit and Credit under American Approach or Modern Approach are as follows :-

[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.

❍ Rules for Debit and Credit :-

• When there is an increase in the Asset, it is 'Debited'.

• When there is a decrease in the Asset, it is 'Credited'.

[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.

❍ Rules for Debit and Credit :-

• When there is an increase in the Liabilities, it is 'Credited'.

• When there is a decrease in the Liabilities, it is 'Debited'.

[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.

❍ Rules for Debit and Credit :-

• When there is an increase in the Capital, it is 'Credited'.

• When there is a decrease in the Capital, it is 'Debited'.

[4] Revenue Accounts :

• Revenue accounts are the accounts of income and gains. These include sales, discount received, interest received, commission received etc.

❍ Rules for Debit and Credit :-

• When there is an increase in the Revenue, it is 'Credited'.

• When there is a decrease in the Revenue, it is 'Debited'.

[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.

❍ Rules for Debit and Credit :-

• When there is an increase in the Expense, it is 'Debited'.

• When there is a decrease in the Expense, it is 'Credited'