Classification of Accounts
Part 2 — Modern Approach
“ALL LIONS CAN ROAR EASILY” — 5 account types, Debit & Credit rules, 5 journal entries
📝 Handwritten Class Note
CA Devesh Thakur’s handwritten note for Day 10 — save it for quick revision!
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Classification of Accounts Part 2 — Day 10
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Modern Approach — ALL LIONS CAN ROAR EASILY mnemonic, 5 account type rules & 5 journal entries explained. Day 10 of 50 Days Accounting Challenge 🦁
▶ Watch on InstagramDay 10: Modern Approach to Classification of Accounts
In Day 9 we learned the Traditional Approach (Personal, Real, Nominal). Today in Day 10, we learn the Modern Approach — used globally and recommended by IFRS/Ind AS. Instead of 3 types, Modern Approach classifies accounts into 5 types: Assets, Liabilities, Capital, Revenue, and Expenses. Each has clear Debit & Credit rules — and they directly map to financial statements. Let’s master this with a powerful mnemonic and 5 journal entries! 🦁
🦁 The Mnemonic — “ALL LIONS CAN ROAR EASILY”
📊 Modern Approach — Debit & Credit Rules
5 Account Types — When to Debit & When to Credit
| Account Type | DEBIT (Dr.) ↑ | CREDIT (Cr.) ↓ |
|---|---|---|
| 🏦 Assets | ↑ When Increases | ↓ When Decreases |
| 💸 Expenses | ↑ When Increases | ↓ When Decreases |
| 📋 Liabilities | ↓ When Decreases | ↑ When Increases |
| 💰 Capital | ↓ When Decreases | ↑ When Increases |
| 📈 Revenue | ↓ When Decreases | ↑ When Increases |
Easy Memory Pattern — Modern Approach
Assets & Expenses — Debit karo jab badhein (same direction as Traditional “comes in/expenses”). Liabilities, Capital, Revenue — Credit karo jab badhein. This mirrors the Accounting Equation: Assets = Liabilities + Capital.
📑 Where Do These Accounts Go?
📊 Profit & Loss A/c
Income & Expense accounts
⚖️ Balance Sheet
Asset, Liability & Capital accounts
✍️ 5 Journal Entry Examples — Modern Approach
Owner started business with ₹1,00,000 Cash
Asset ↑ (Cash comes in) | Capital ↑ (Owner’s investment)
| Particulars | Account Type | Dr. (₹) | Cr. (₹) |
|---|---|---|---|
| Cash A/c Dr.Asset — increases ↑ | Asset | 1,00,000 | — |
| Capital A/c Cr.Capital — increases ↑ | Capital | — | 1,00,000 |
Purchased Furniture worth ₹20,000
Asset ↑ (Furniture in) | Asset ↓ (Cash out)
| Particulars | Account Type | Dr. (₹) | Cr. (₹) |
|---|---|---|---|
| Furniture A/c Dr.Asset — increases ↑ | Asset | 20,000 | — |
| Cash A/c Cr.Asset — decreases ↓ | Asset | — | 20,000 |
Took Loan of ₹50,000 from Bank
Asset ↑ (Cash/Bank in) | Liability ↑ (Loan created)
| Particulars | Account Type | Dr. (₹) | Cr. (₹) |
|---|---|---|---|
| Bank/Cash A/c Dr.Asset — increases ↑ | Asset | 50,000 | — |
| Loan A/c Cr.Liability — increases ↑ | Liability | — | 50,000 |
Sold goods for ₹30,000 Cash
Asset ↑ (Cash in) | Revenue ↑ (Income earned)
| Particulars | Account Type | Dr. (₹) | Cr. (₹) |
|---|---|---|---|
| Cash A/c Dr.Asset — increases ↑ | Asset | 30,000 | — |
| Sales A/c Cr.Revenue — increases ↑ | Revenue | — | 30,000 |
Paid Salary ₹5,000
Expense ↑ (Salary incurred) | Asset ↓ (Cash out)
| Particulars | Account Type | Dr. (₹) | Cr. (₹) |
|---|---|---|---|
| Salary A/c Dr.Expense — increases ↑ | Expense | 5,000 | — |
| Cash A/c Cr.Asset — decreases ↓ | Asset | — | 5,000 |
Golden Rule of Double Entry — Always Balanced!
Notice that in every journal entry, the Total Dr. = Total Cr. This is the foundation of Double-Entry Bookkeeping — every transaction has two equal and opposite effects. This is why the Balance Sheet always balances!
Traditional vs Modern — How They Connect
Day 9 (Traditional): Personal, Real, Nominal → 3 types.
Day 10 (Modern): Assets, Liabilities, Capital, Revenue, Expenses → 5 types.
Mapping: Personal A/c = Liabilities/Capital/Assets. Real A/c = Assets. Nominal A/c = Revenue + Expenses. Modern approach is more aligned with IFRS/Ind AS.
📊 Quick Summary — Modern Approach
| Account Type | Mnemonic | Debit When | Credit When | Appears In |
|---|---|---|---|---|
| Assets (A) | ALL | Increases ↑ | Decreases ↓ | Balance Sheet (Dr. side) |
| Liabilities (L) | LIONS | Decreases ↓ | Increases ↑ | Balance Sheet (Cr. side) |
| Capital (C) | CAN | Decreases ↓ | Increases ↑ | Balance Sheet (Cr. side) |
| Revenue (R) | ROAR | Decreases ↓ | Increases ↑ | P&L A/c (Cr. side — Income) |
| Expenses (E) | EASILY | Increases ↑ | Decreases ↓ | P&L A/c (Dr. side — Expense) |
