The types of account which we require in the ledger fall into five categories:
Assets – which are the resources possessed by the business: property; motor vehicles; bank balance; cash; debts owing to the business; etc.
Liabilities – which are moneys owing by the business for goods supplied, for expense items and for amounts borrowed.
Capital – which is the amount supplied by the proprietor to the business.
Income – which is the revenue of the business. It may be sales; work done; fees earned; rents receivable; commission; etc.
Purchases and expenses – which are items of expenditure "used up" by the business. Purchases are of goods for resale. Expense items may include.
Let's think about each of the entries in the table in turn. One example of a ledger account for
an asset is the bank account. If the bank account "receives", then the bank balance has
increased so we debit the bank account. If the bank account "gives", then the bank balance
has decreased, so we credit the bank account.
An example of a ledger account for a liability is the account for a creditor – say, Mr X. If Mr X
"gives", the liability to pay him increases so we credit his account. If Mr X "receives", the
liability to pay him decreases, so we debit his account. Similarly, if the capital account
"gives", the liability to pay the proprietor increases, so we credit the capital account. If the
capital account "receives", then the liability to pay the proprietor decreases, so we debit the
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