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What is an Account

Each account is shown on a different page.

Page is divided vertically into two halves.

Left side is Debit side; right side is Credit side

 

Rules of Debit and Credit


There are two systems or practices of putting the accounts.

 

American System

This system classifies accounts into five categories:

Assets account

Debit the increase in assets; Credit the decrease in assets

Liabilities account

Debit the decrease in liabilities; Credit the increase in liabilities

Capital account

Debit the decrease in Capital; Credit the increase in Capital

Revenue account

Debit the decrease in income; Credit the increase in income

English system

Classification of Accounts

Personal Accounts

Personal accounts are those which are opened under the NAME of individuals, firms, company, institution etc.
For example John’s account, dinesh’s account, Coca-Cola ltd account, bank account etc.

Rule
Debit the Receiver
Credit the Giver

Real Accounts

All the assets owned by the business can be classified in this account. These can be categorized as

Tangible real accounts

All those which can be seen, touched and measured such as
Building
Land
Cash account
Stock account
Furniture account

Intangible real accounts

Those accounts which cannot be touched or seen. Examples include
Goodwill account
Patent accounts

Rule
Debit what comes in
Credit what goes out

Nominal Accounts

These include all those accounts which are related with incomes/gains and expenses/losses of the business.

Incomes/gains Expenses/losses
Commission received account Rent paid account
Discount received account Salary paid account
Interest received account Commission paid account
Dividends received account Discount allowed account
Loss due to theft account
Loss due to fire account

Rule
Debit all expense and losses
Credit all incomes and gains

 

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