Classification of Accounts Part 2 โ€“ Modern Approach | Day 10 | CA Devesh Thakur
๐Ÿ“– Day 10 ยท 50 Days Accounting Challenge

Classification of Accounts
Part 2 โ€” Modern Approach

“ALL LIONS CAN ROAR EASILY” โ€” 5 account types, Debit & Credit rules, 5 journal entries

by CA Devesh Thakur
๐Ÿ“… Series: Day 10 of 50 ๐Ÿ“— Topic: Modern Approach ๐ŸŒ etaxsave.com
Homeโ€บ Blogโ€บ 50 Days Accounting Challenge โ€” Day 10

๐Ÿ“ Handwritten Class Note

CA Devesh Thakur’s handwritten note for Day 10 โ€” save it for quick revision!

Classification of Accounts Part 2 โ€“ Modern Approach โ€“ Handwritten Note by CA Devesh Thakur

๐ŸŽฌ Watch Day 10 Reel on Instagram

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Classification of Accounts Part 2 โ€” Day 10

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Modern Approach โ€” ALL LIONS CAN ROAR EASILY mnemonic, 5 account type rules & 5 journal entries explained. Day 10 of 50 Days Accounting Challenge ๐Ÿฆ

โ–ถ  Watch on Instagram

Day 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 โ€” 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 โ€” and they directly map to financial statements. Let’s master this with a powerful mnemonic and 5 journal entries! ๐Ÿฆ

๐Ÿฆ The Mnemonic โ€” “ALL LIONS CAN ROAR EASILY”

“ALL LIONS CAN ROAR EASILY”

A Asset
L Liability
C Capital
R Revenue
E Expense

All  Lions  Can  Roar  Easily โ€” yaad karo aur kabhi nahi bhuloge! ๐Ÿฆ

๐Ÿ“Š Modern Approach โ€” Debit & Credit Rules

5 Account Types โ€” When to Debit & When to Credit

Account TypeDEBIT (Dr.) โ†‘CREDIT (Cr.) โ†“
๐Ÿฆ Assets โ†‘ When Increases โ†“ When Decreases
๐Ÿ’ธ Expenses โ†‘ When Increases โ†“ When Decreases
๐Ÿ“‹ Liabilities โ†“ When Decreases โ†‘ When Increases
๐Ÿ’ฐ Capital โ†“ When Decreases โ†‘ When Increases
๐Ÿ“ˆ Revenue โ†“ When Decreases โ†‘ When Increases
๐Ÿ’ก

Easy Memory Pattern โ€” Modern Approach

Assets & Expenses โ€” Debit karo jab badhein (same direction as Traditional “comes in/expenses”). Liabilities, Capital, Revenue โ€” Credit karo jab badhein. This mirrors the Accounting Equation: Assets = Liabilities + Capital.

๐Ÿ“‘ Where Do These Accounts Go?

๐Ÿ“Š Profit & Loss A/c

Income & Expense accounts

DR. SIDE (เค–เคฐเฅเคšเฅ‡)
Expenses
Losses
Salary A/c
Rent A/c
CR. SIDE (เค†เคฏ)
Revenue/Income
Gains
Sales A/c
Interest A/c

โš–๏ธ Balance Sheet

Asset, Liability & Capital accounts

DR. SIDE (Assets)
Cash A/c (เคธเค‚เคชเคคเฅเคคเคฟ)
Furniture A/c
Building A/c
Debtors
CR. SIDE (L + C)
Capital (เคชเฅ‚เค‚เคœเฅ€)
Loan A/c
Creditors
Bank Overdraft

โœ๏ธ 5 Journal Entry Examples โ€” Modern Approach

1

Owner started business with โ‚น1,00,000 Cash

Asset โ†‘ (Cash comes in) | Capital โ†‘ (Owner’s investment)

Asset + Capital
Analysis: Cash A/c = Asset โ†’ increases โ†’ Dr. | Capital A/c = Capital โ†’ increases โ†’ Cr.
ParticularsAccount TypeDr. (โ‚น)Cr. (โ‚น)
Cash A/c Dr.Asset โ€” increases โ†‘Asset1,00,000โ€”
Capital A/c Cr.Capital โ€” increases โ†‘Capitalโ€”1,00,000
2

Purchased Furniture worth โ‚น20,000

Asset โ†‘ (Furniture in) | Asset โ†“ (Cash out)

Asset Exchange
Analysis: Furniture A/c = Asset โ†’ increases โ†’ Dr. | Cash A/c = Asset โ†’ decreases โ†’ Cr.
ParticularsAccount TypeDr. (โ‚น)Cr. (โ‚น)
Furniture A/c Dr.Asset โ€” increases โ†‘Asset20,000โ€”
Cash A/c Cr.Asset โ€” decreases โ†“Assetโ€”20,000
3

Took Loan of โ‚น50,000 from Bank

Asset โ†‘ (Cash/Bank in) | Liability โ†‘ (Loan created)

Asset + Liability
Analysis: Bank/Cash A/c = Asset โ†’ increases โ†’ Dr. | Loan A/c = Liability โ†’ increases โ†’ Cr.
ParticularsAccount TypeDr. (โ‚น)Cr. (โ‚น)
Bank/Cash A/c Dr.Asset โ€” increases โ†‘Asset50,000โ€”
Loan A/c Cr.Liability โ€” increases โ†‘Liabilityโ€”50,000
4

Sold goods for โ‚น30,000 Cash

Asset โ†‘ (Cash in) | Revenue โ†‘ (Income earned)

Asset + Revenue
Analysis: Cash A/c = Asset โ†’ increases โ†’ Dr. | Sales A/c = Revenue โ†’ increases โ†’ Cr.
ParticularsAccount TypeDr. (โ‚น)Cr. (โ‚น)
Cash A/c Dr.Asset โ€” increases โ†‘Asset30,000โ€”
Sales A/c Cr.Revenue โ€” increases โ†‘Revenueโ€”30,000
5

Paid Salary โ‚น5,000

Expense โ†‘ (Salary incurred) | Asset โ†“ (Cash out)

Expense + Asset
Analysis: Salary A/c = Expense โ†’ increases โ†’ Dr. | Cash A/c = Asset โ†’ decreases โ†’ Cr.
ParticularsAccount TypeDr. (โ‚น)Cr. (โ‚น)
Salary A/c Dr.Expense โ€” increases โ†‘Expense5,000โ€”
Cash A/c Cr.Asset โ€” decreases โ†“Assetโ€”5,000
โš ๏ธ

Golden Rule of Double Entry โ€” Always Balanced!

Notice that in every journal entry, the Total Dr. = Total Cr. This is the foundation of Double-Entry Bookkeeping โ€” every transaction has two equal and opposite effects. This is why the Balance Sheet always balances!

๐Ÿ”—

Traditional vs Modern โ€” How They Connect

Day 9 (Traditional): Personal, Real, Nominal โ†’ 3 types.
Day 10 (Modern): Assets, Liabilities, Capital, Revenue, Expenses โ†’ 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.

๐Ÿ“Š Quick Summary โ€” Modern Approach

Account TypeMnemonicDebit WhenCredit WhenAppears In
Assets (A)ALLIncreases โ†‘Decreases โ†“Balance Sheet (Dr. side)
Liabilities (L)LIONSDecreases โ†“Increases โ†‘Balance Sheet (Cr. side)
Capital (C)CANDecreases โ†“Increases โ†‘Balance Sheet (Cr. side)
Revenue (R)ROARDecreases โ†“Increases โ†‘P&L A/c (Cr. side โ€” Income)
Expenses (E)EASILYIncreases โ†‘Decreases โ†“P&L A/c (Dr. side โ€” Expense)
โ† Day 9: Classification Part 1 All Days โ†’

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