Accounting Process & Rules - Session 7

Account Heads • Account Heads are decided on the basis of benefits to the parties involved in the transaction. • Account Heads are different names given to different types of assets, liabilities, income/profit and expenses/ losses.

Account Heads • Examples : • 1.Bank loan a\c is the name for liability towards bank. • 2. Buildings a\c is an accounting head for Buildings. • 3. Printing & Stationery is an accounting head for expenses on printing and stationery.

Account Heads Types of Accounts Personal

Real

Nominal

Types of Accounts • 1.Personal account- It deals with accounts of individuals like creditors, debtors, bank. It shows the balance due to them or due from them on a particular date.

Types of Accounts • 2. Real Account- It represents assets like plant and machinery, land and building, goodwill. As on a particular date, this account shows the worth of the asset.

Types of Accounts • 3.Nominal account- It consists of different types of expenses or incomes or loss or profit. These accounts show the amount of income earned or expenses incurred for a particular period, say, a month, a year.

Examples Personal Bank Debtors Creditors Capital Drawings Loan Bank Overdraft

Real Plant & Mach. Land & Bldg. Goodwill Furniture Cash Stock Sales

Nominal Salaries Rent Paid Rent recd. Freight Repairs Comm. recd. Electricity

Rules of Debit & Credit Personal

Real

Nominal

Debit

The Receiver What comes All expenses in & losses

Credit

The Giver

What goes out

All incomes & gains

The Accounting Equation Assets = Liabilities + Stockholder’s or Owners’ Equity

Accounting Jargon • To increase an asset’s balance, debit the asset a\c. • To decrease an asset’s balance, credit the asset a\c.

Accounting Jargon • To increase the liability balance, credit the liability a\c. • To decrease the liability balance, debit the liability a\c.