Theory question 101
Double Entry and the LedgerExplain the following types of accounts and in each case, state the rules regarding the recording of transactions in their debit and credit sides.
(a) Personal Account; (b) Real Account; (c) Nominal Account; (d) Liabilities Account; (e) Assets Account.
Show the model answer
(a) Personal account: account of a person or organisation the business deals with (debtors, creditors, capital).
Rule: debit the receiver, credit the giver.
(b) Real account: account of property/things owned (land, buildings, cash, stock).
Rule: debit what comes in, credit what goes out.
(c) Nominal account: account of incomes, gains, expenses and losses (rent, wages, commission received).
Rule: debit expenses and losses, credit incomes and gains.
(d) Liabilities account: account of amounts the business owes (loans, creditors).
Rule: debit a decrease in the liability, credit an increase.
(e) Assets account: account of resources the business owns.
Rule: debit an increase in the asset, credit a decrease.
For each type give a one-line meaning, an example and its debit/credit rule.