SUBDIVISION OF CAPITAL ACCOUNT 43 



and decreases of capital under various appropriate heads 

 named so as to show the reason for such increases and de- 

 creases. The transaction under discussion is the one shown 

 on page 14, in which Mr. Arnold paid $400 on Feb. 21 for 

 the year's rent. Under the first method, that of showing 

 increases and decreases of capital direct in the Capital 

 account, the entry made is a debit to Mr. Arnold's Capi- 

 tal account and a credit to Cash account. Under the sec- 

 ond method, that of showing increases and decreases of 

 capital temporarily in other accounts appropriately named, 

 the entry made is a debit to Kent account and a credit 

 to Cash account. 



Similarly, under the second method of recording in- 

 creases and decreases of capital, when $30 is paid for labor 

 on March 31, the entry is a debit to Labor account and a 

 credit to Cash account. When garden truck is sold for 

 $20 cash, the Cash account is debited and Miscellaneous 

 Income account credited. An account called Garden Truck 

 can be kept if desired. In this way, all of the items in 

 the several accounts of Illustration 9 might be traced from 

 the transactions stated on pages 14 and 15. 



Nominal Accounts. It is customary in business practice 

 to use the several specially named accounts for recording 

 increases and decreases in capital. Those accounts showing 

 increases in capital are called income accounts; those show- 

 ing decreases in capital are called expense accounts. All 

 expense and income accounts are known as nominal ac- 

 counts. They bear this title largely because of the fact 

 that they are only temporary accounts, while the resource, 

 liability and Capital accounts are more or less permanent. 

 The nominal accounts are said to be temporary, and at the 

 same time merely subdivisions of the Proprietor's Capital 

 account because they show the nature of increases and de- 

 creases in capital only for a brief period of time. At regu- 

 lar intervals, the results of the several nominal accounts 



