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.
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3 Golden rules of Accounting | Concepts behind it Explained with examples
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.
Click here to check the meaning of a Capital.
Now the question: –
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.
Click here to check the meaning of an asset.
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.
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.
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.
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