sai kumar reddy
When you start learning accounting through Tally or through any other mediums, knowing how to create a ledger, trial balance ,profit and loss account is inevitable. I am writing this to try and explain the types of accounts with examples and how to make entries in your ledger.
Dec 17 2013 04:20 PM
We will actually see what we put in debit and what we put in credit.The three basic types of accounts are
Personal account: Usually a bank account, capital etc come under Personal account. It is important to know, after concluding that the transaction is of a personal account, what willbe credit and what will be debit.
Credit: The giver
debit: the receiver
Example: Peter started a business with cash 2000$. Note that Peter's account is a personal account. The capital will be a personal account entry and will be a credit as Peter is the giver.
Manish deposited cash in bank. Manish's account will be a personal account and he is the giver so it will be considered a credit. Bank is the receiver so debit.
Real accounts: Cash, goods all come under real account.
Credit: what goes out is credit
debit: what comes in is debit.
Nelson sold goods for 5000. Since goods are real account entries we find that goods are going out so credit and cash is coming in after the sale so debit.Both transactions are of a real account
Nominal account: This is easy to understand.
Credit: All the earnings out of a business venture will be credit
debit: all the expenses will be debit
example: Mark paid salary to Nike.Snce Mark is paying it is an expense for him so debit and it will be credit for the receiver Nike in his personal account.