Types of Accounts Related to Goods PDF 28
Goods are the items that a business buys and sells for the purpose of earning profit. Goods can be classified into different types based on their nature, usage, and ownership. In accounting, goods are recorded in various accounts depending on their type and the transaction involved. In this article, we will discuss the types of accounts related to goods and their accounting treatment.
Types Of Accounts Related To Goods Pdf 28
Types of Goods
Goods can be broadly classified into two types: real goods and nominal goods.
Real goods are the tangible goods that have physical existence and can be seen and touched. Examples of real goods are furniture, machinery, stock, cash, etc. Real goods are recorded in real accounts in accounting.
Nominal goods are the intangible goods that do not have physical existence and cannot be seen or touched. Examples of nominal goods are goodwill, patents, trademarks, etc. Nominal goods are recorded in nominal accounts in accounting.
Types of Accounts Related to Goods
Based on the traditional approach of accounting, there are three types of accounts: personal accounts, real accounts, and nominal accounts. Each type of account has a different rule for recording debit and credit transactions. The types of accounts related to goods are as follows:
Type of Account
Description
Example
Debit Rule
Credit Rule
Personal Account
The account that records the transactions related to individuals, firms, companies, etc.
Debtors A/c, Creditors A/c, Bank A/c, Capital A/c, etc.
Debit the receiver
Credit the giver
Real Account
The account that records the transactions related to real goods or assets.
Furniture A/c, Machinery A/c, Stock A/c, Cash A/c, etc.
Debit what comes in
Credit what goes out
Nominal Account
The account that records the transactions related to nominal goods or expenses and incomes.
Rent A/c, Salary A/c, Interest A/c, Sales A/c, etc.
Debit all expenses and losses
Credit all incomes and gains
Accounting Treatment of Goods Transactions
To record the transactions related to goods in accounting, we need to identify the type of account involved and apply the appropriate debit and credit rule. Here are some examples of goods transactions and their journal entries:
Purchased furniture for 10,000 in cash.
This transaction involves two real accounts: Furniture A/c and Cash A/c. Furniture is a real good that comes in the business, so we debit Furniture A/c. Cash is a real good that goes out of the business, so we credit Cash A/c.
The journal entry is:
Furniture A/c Dr. 10,000
To Cash A/c Cr. 10,000
Sold goods worth 20,000 to Ram on credit.
This transaction involves one personal account and one nominal account: Ram A/c and Sales A/c. Ram is a person who receives the goods from the business, so we debit Ram A/c. Sales is an income that is earned by the business from selling the goods, so we credit Sales A/c.
The journal entry is:
Ram A/c Dr. 20,000
To Sales A/c Cr. 20,000
Paid rent for the current month 5,000 by cheque.
This transaction involves one personal account and one nominal account: Bank A/c and Rent A/c. Bank is a person who gives the cheque to the landlord on behalf of the business, so we credit Bank A/c. Rent is an expense that is incurred by the business for using the premises, so we debit Rent A/c.
The journal entry is:
Rent A/c Dr. 5,000
To Bank A/c Cr. 5,000
Conclusion
Goods are an important part of any business and their accounting treatment depends on their type and the type of account involved. By understanding the types of accounts related to goods and their debit and credit rules, we can record the goods transactions accurately and prepare the financial statements correctly.
For more information on types of accounts related to goods, you can download the PDF file from this link.
References
[Types of Accounts: Classification of Accounting, Personal ... - Toppr]
[Types of Accounts - Personal, Real and Nominal Accounts - Tutorial Kart]
[LEDGER - The National Institute of Open Schooling (NIOS)]
[Journal Entries Examples (with PDF) - Accounting Capital]
[What are the Three Types of Accounts? - Accounting Capital]
[Types of Accounts Related to Goods PDF 28]
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