135 The rule is: DEBIT IS WHAT COMES IN CREDIT IS WHAT GOES OUT For example, if a building has been purchased for cash, the building account should be debited (since it is coming in the business), while the cash account should be credited (since cash is going out the business). Similarly when furniture is purchased for cash, the furniture account should be debited while the cash account should be credited. Nominal accounts. These accounts are opened in the books to simply explain the nature of the transactions. They do not really exist. For example, in a business, salary is paid to the manager, rent is paid to the landlord, commission is paid to the salesman, cash goes out of the business and it is something real; while salary, rent or commission as such do not exist. The accounts of these items are opened simply to explain how the cash has been spent. In the absence of such information, it may difficult for the person concerned to explain how the cash at his disposal was utilised. Nominal Accounts include accounts of all expenses, losses, incomes and gains. The examples of such accounts are rent, rates lighting, insurance, dividends, loss by fire, etc. The rule is: DEBIT ALL EXPENSES AND LOSSES CREDIT ALL GAINS AND INCOMES Tutorial Note. Both Real Accounts and Nominal Accounts come in the category of Impersonal Accounts. The student should note that when some prefix or suffix is added to a Nominal Account, it becomes a Personal Account. A table is being given to explain the above rule: Table 3.1 Nominal and Personal Accounts Nominal Account Personal Account Rent prepaid account, Outstanding rent account. 2. Interest account Outstanding interest account, Interest received in advance account, Prepaid interest account. 3. Salary account Outstanding salaries account, Prepaid salaries account. 4. Insurance account Outstanding insurance account, Prepaid insurance account. 5. Commission account Outstanding commission account, Prepaid commission account. Illustration 3.1. From the following transactions find out the nature of account and also state which account should be debited and which account should be credited. (a) Rent paid () Outstanding for salaries (b) Salaries paid (h) Telephone charges paid (e) Interest received () Paid to Suresh (d) Dividends received (6) Received from Mohan (the proprietor) (e) Furniture purchased for cash (k) Lighting @ Machinery sold 1. Rent account