Question

Identify the following account as Personal Account ,Real Account and Nominal Account . Also as an Assets , Liability, Capital , Revenue and Expense . 

a) Drawings Account , b) Bank Charge Account c) Commission Account  d) Purchase Account

e) Return outward Account  f) Bank overdraft Account g) Loan Account 

 h) Outstanding Salary Account



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Answer 1

Answer:

a) Drawings Account = Decrease in Capital

b) Bank Charge Account = Nominal, Expense

c) Commission Account = Nominal, Revenue, Expense

d) Purchase Account  = Nominal, Expense

e) Return outward Account = Decrease in Expense, Nominal

f) Bank overdraft Account = Liability

g) Loan Account   = Liability

h) Outstanding Salary Account = Liability

Explanation:

#The accounting transaction typically found in a drawing account is a credit to the cash account and a debit to the drawing account. The drawing account is a contra equity account, and is therefore reported as a reduction from total equity in the business. Thus, a drawing account deduction reduces the asset side of the balance sheet and reduces the equity side at the same time.

The drawing account is not an expense - rather, it represents a reduction of owners' equity in the business. The drawing account is intended to track distributions to owners in a single year, after which it is closed out (with a credit) and the balance is transferred to the owners' equity account (with a debit). The drawing account is then used again in the next year to track distributions in the following year. This means that the drawing account is a temporary account, rather than a permanent account.

#The term bank charge covers all charges and fees made by a bank to their customers. In common parlance, the term often relates to charges in respect of personal accounts or checking account. These charges may take many forms , including monthly charges for the provision of an account, charges for specific transactions (other than overdraft limit excess), interest in respect of overdrafts, and charges for exceeding authorised overdraft limits, or making payments.  

Bank charges account is hence classified as a nominal account.

#Under the accrual basis of accounting, you should record an expense and an offsetting liability for a commission in the same period as you record the sale generated by the salesperson, and when you can calculate the amount of the commission. This is a debit to the commission expense account and a credit to a commission liability account (which is usually classified as a short-term liability, except for cases where you expect to pay the commission in more than one year).

Under the cash basis of accounting, you should record a commission when it is paid, so there is a credit to the cash account and a debit to the commission expense account.

#A temporary account used in the periodic inventory system to record the purchases of merchandise for resale. (Purchases of equipment or supplies are not recorded in the purchases account.) This account reports the gross amount of purchases of merchandise. Net purchases is the amount of purchases minus purchases returns, purchases allowances, and purchases discounts.

#Outward returns reduce the total accounts payable for a business. It is a sales return and on the other, it is a purchase return. The transaction in both cases is reversed and the related sale or purchase is nullified.

Purchase returns reduce the total purchases/accounts payable of a company and the deduction is shown in the trading account. A subsidiary book called Purchase returns book is prepared to record all such entries.

#An overdraft usually refers to a checking account where the amount of checks presented to the bank for payment exceeds the amount on deposit. When this occurs we say that the checking account customer has overdrawn its account. The overdraft means that the bank's records indicate a negative checking account balance.

#Loan payables need to be classified under current or non-current liabilities depending on the maturity of loan re-payment. For example, if a loan is to be repaid in 3 years’ time, the liability would be recognized under non-current liabilities. After 2 years, the liability will be re-classified under current liabilities, i.e. when the loan is due to be settled within one year.

#Outstanding expense are those expense which are due but not paid and to be added with the respective expenses head and shown as liability in the balance sheet.

Any amount which is due to a person against which the services are already provided for is an outstanding expenses. These are personal account but put together clubbed and considered as representative person account.

Answer 2

We are provided with certain accounts and we are required to identify them into the categories that are provided. The classification will be done as under:

1. Drawings Account: This can be classified as a Personal Account and as an expense account because drawings are for personal use of a partner.
2. Bank Charge Account is a nominal account and is an expense.
3. A commission Account is a nominal account and can be either an expense or income.
4. A purchase Account is a nominal account and is an expense.
5. Return outward Account is a nominal account and is an asset as it is credited.
6. A bank overdraft Account is a Personal Account and is a liability.
7. A loan Account is a personal account and is a liability.
8. An outstanding Salary Account is a personal account and is an expense.

PROJECT CODE: #SPJ2