Confusions on Debiting and Crediting of Purchases Account and Sales Account.

There are some confusions Accounting learners face when they are going to select Debit and Credit Ledger by applying the Principles of Accounting/Debit and Credit Rule.

One have to find Debit and Credit Ledger Accounts  using either one of the Accounting Approach.

• Traditional Approach or

• Modern Approach

Let's come to discuss about some of the confusions on Debit and Credit Ledger selection.

Purchases Account(Purchase of Goods)

Which is Correct ?

In Traditional Accounting Approach

1. Purchases Account is an Expense under Nominal Account.

2. Purchases Account is an Asset Account under Real Account.

Ans - Both are correct.

Explanation :

When Purchases Account is considered as an Expense Account under Nominal Account.

If 'Purchases Account' is considered as an Expense Account under Nominal Account, it shows Debit effect. Because in Traditional Accounting Approach 'All expenses and Losses are Debited'.

Due to Purchases Account is a Direct Expense in nature it reflects in Debit side of Trading Account.

When Purchases Account is considered as an Asset Account under Real Account.

If, Purchases Account is considered as an Asset Account under Real Account of Traditional Accounting Approach, it shows Debit effect. Because Purchases Account is an Inward flow of Goods/Inventory/Stock Account(Current Asset).

In Traditional Accounting Approach 'What comes in' are debited.

In Modern Accounting Approach

1. Purchases Account is an Expense Account.

2. Purchases Account is an Asset Account.

Ans - Both are correct.

Explanation :

When Purchases Account is considered as an Expense Account.

If 'Purchases Account' is considered as an Expense Account, it shows Debit effect. Because in Modern Accounting Approach 'Increase of Expenses are Debited'.

In transactions for Purchase of Goods, Purchases Account shows an effect of Increase in Expenses.

When Purchases Account is considered as an Asset Account.

If, Purchases Account is considered as an Asset Account, it shows Debit effect. Because  in Modern Accounting Approach 'Increase of Assets are Debited'.

Purchases Account is an Inward flow of Goods/Inventory/Stock Account(Current Asset) i.e Increase of Assets.

"Purchases Account always shows Debit effect"

Sales Account(Sale of Goods)

Which is Correct ?

In Traditional Accounting Approach

1. Sales Account is an Income under Nominal Account.

2. Sales Account is an Asset Account under Real Account.

Ans - Both are correct.

Explanation :

When Sales Account is considered as an Income Account under Nominal Account.

If 'Sales Account' is considered as an Income Account under Nominal Account, it shows Credit effect. Because in Traditional Accounting Approach 'All Income and Gains are Credited'.

Due to Sales Account is a Direct Income in nature it reflects in Credit side of Trading Account.

When Sales Account is considered as an Asset Account under Real Account.

If, Sales Account is considered as an Asset Account under Real Account of Traditional Accounting Approach, it shows Credit effect. Because Sales Account is an Outward flow of Goods/Inventory/Stock Account(Current Asset).

In Traditional Accounting Approach 'What Goes out' are Credited.

In Modern Accounting Approach

1. Sales Account is a Revenue Account.

2. Sales Account is an Asset Account.

Ans - Both are correct.

Explanation :

When Sales Account is considered as a Revenue Account.

If 'Sales Account' is considered as a Revenue Account, it shows Credit effect. Because in Modern Accounting Approach 'Increase of Revenue are Credited'.

In transactions for Sale of Goods, Sales Account shows an effect of Increase of Revenue.

When Sales Account is considered as an Asset Account.

If, Sales Account is considered as an Asset Account, it shows Credit effect. Because  in Modern Accounting Approach 'decrease of Assets are Credited' .

Sales Account is an Outward flow of Goods/Inventory/Stock Account(Current Asset) i.e decrease of Assets.

"Sales Account always shows Credit effect"