The Modern Approach of Accounting

The Journal is the basis of the accounting system, In Journal we record day to day transaction of business. For journalizing day to day transaction of the business, we have to know about two types of principles/ Rules/ Modern Approach of Accounting shown in the diagram below.

chart of rules of accounting

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Explanation of Modern rules of Accounting:

Now, We will explain all these five Modern rules of Accounting individually with examples:

Type of Accounts	Debit	Credit
1. Capital Account	Increase	Decrease
2. Assets Account	Decrease	Increase
3. Liabilities Account	Increase	Decrease
4. Expenses Account	Decrease	Increase
5. Income Account	Increase	Decrease

1. Capital Account

This rule is applicable to all transactions which are related to an owner of the business. Example of Capital Accounts:- Cash invested by an owner into business, Cash withdraw by an owner from the business, Life Insurance premium paid for the life of the owner,  Etc.


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Modern Approach of accounting | Capital rule

2. Assets Account

This rule is applicable to all assets of the business when an asset is purchased, sold, depreciated or disposed of. Example of assets Accounts:- Cash, Land and Building, Plant and Machine, Furniture and Fixture, Trademarks, Etc.


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Modern Approach of accounting | Assets rule

3. Liabilities Account

This rule is applicable to all Liabilities of the business when liability is created, repaid, etc. Example of Liabilities Accounts:- Bank Loan, Mortgage Loan Creditors, Short Term Loans, Etc.

Modern Approach of accounting | Liabilities rule

4. Expenses Account

This rule is applicable to all Expenses of the business. Example of Expenses Accounts:- Salary, Wages, Rent, Carriage, Freight, Transportation, Purchases of Goods only, Etc.

The modern approach of accounting | Expenses rule

5. Income Account

This rule is applicable to all Income of the business. Example of Expenses Accounts:- Sale of goods, Gain on Sale of Assets, Commission Received, Rent Received, Discount Received, Bad Debts Recovery,  Etc.

Modern Approach of accounting | Income rule

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