Classification of Accounts (Detailed)

In the previous post at KSF: Accounting, I have mentioned briefly about the definition of each of the classes of income which are ASSET(A), LIABILITY(L), CAPITAL(C), EXPENSES(E), and INCOME(I).

A + E = C + L + I

In order for us to understand better, we must remember that each of the classes of accounts have its own natural MOTHER, either DEBIT(DR) or CREDIT(CR). Following are the mother of each classes;

Assets     : DR
Expenses : DR

Capital     : CR
Liability    : CR
Income    : CR

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For the classes with DR mother,

1. If the account is being DR it means "Add"
2. If the account is being CR it means "Minus"
3. In the ledger account (T account), for Assets account the basic normal concept is that its balance brought down (bal b/d) would be on the DR side, while its balance carried down (bal c/d) would be on the CR side.  

• Example - Basic normal concept

• However, it can happen where the bal b/d or bal c/d is not at the same place with the basic concept, for instance;

          Basic normal concept

- In this situation, the Bank account will appear as "Bank" under Current Assets in the Statement of Financial Position (Balance Sheet)

        Not the same with basic normal concept

- On the other hand, in this situation, the Bank account will appear as "Bank Overdraft" under Current Liabilities in the Statement of Financial Position (Balance Sheet)

- This is because the money in the Bank account have been overly withdrawn

Additional notes:

* All EXPENSES Account do not have bal b/d or bal c/d. The balancing figure will be transferred to the Statement of Comprehensive Income (Profit & Loss account)

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For classes with CR mother,

1. If the account is being CR it means "Add"
2. If the account is being DR it means "Minus"
3. In the ledger account (T account), for Capital and Liability account the basic normal concept is that its balance brought down (bal b/d) would be on the CR side, while its balance carried down (bal c/d) would be on the DR side.  

• Example - Basic normal concept

• However, it can happen where the bal b/d or bal c/d is not at the same place with the basic concept, for instance;

         Basic normal concept

- In this situation, the final figure in the Statement of Financial Position (Balance Sheet) will be a positive figure

          Not the same with basic normal concept

- In this situation, the final figure in the Statement of Financial Position (Balance Sheet) will be a negative figure, and it can also be written as "Accumulated Losses" instead of "Retained Profits"

Additional notes:

* All INCOME Account do not have bal b/d or bal c/d. The balancing figure will be transferred to the Statement of Comprehensive Income (Profit & Loss account)