Modern Approach of Accounting
The Journal is the basis of the accounting system, In Journal we record all day to day transaction of business. For journalizing all day to day transaction of the business we have to know about two type of principles/ Rules/ Modern Approach of Accounting shown in the diagram below.
If you did not read our article on Traditional/Golden rules of accounting then click here
Now, I will explain all these five Modern rules of Accounting individually with examples:
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: –
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.
This rule is applicable to all Liabilities of the business when a liability is created, repaid, etc.
Example of Liabilities Accounts:- Bank Loan. Mortgaged Loan Creditors, Short Terms Loans, Etc.
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.
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 Recover, Etc.