Asset = Liabilities + Owners Equity + Revenue - Expenses

Assets and expenses have debit balances

Liabilities, equity and revenue accounts have credit balances

Debits increase the value of assets, expenses and loss accounts.

Credits increase the value of liability, equity, revenue and gain accounts.

Assets are items that have value to the business.

Current Assets
Current assets are assets that will be converted into cash or used by the business within the next 12
months (such as accounts receivable).

That is, they will be fully used up by the business in its operations within the next 12 months.

Examples of current assets include:

 Inventory
 Sundry debtors
 Cash at bank
 Petty cash
 GST paid
 Accounts receivable

Non-current Assets
Non-current assets are assets that could be used by the business for a period greater than 12
months.

These are assets that have a longer life span than just one year.

Examples of non-current assets include:

 Motor vehicles
 Plant & machinery
 Furniture & fittings
 Land
 Buildings
 Premises
 Shares
 Computers
 Office equipment
Liabilities are amounts owed to third parties.

Current Liabilities
Current liabilities are obligations that the business must pay within 12 months.

Examples of current liabilities include:

 Bank overdraft
 Sundry creditors
 GST collected
 Accounts Payable
 Short-term loans

Non-current Liabilities
Non-current liabilities are obligations that the business will repay over a time span longer than 12
months.

Examples include:

 Mortgage on buildings
 Long-term Loans

Owners Equity
Owner’s equity is the amount owed to the business owner after all other liabilities have been paid.

This includes:

 Capital
 Drawings

Expenses
Expenses are items that have been spent in order for the business to operate and have no ongoing
value.

This includes:

 Rates and taxes

 Advertising
 Interest paid
 Electricity
 Telephone
 Stationery
 Cost of goods sold (COGS)
 Printing/photocopying
 Salaries and wages
 Donations
 Water rates
 Bad debts
 Payroll tax
 Insurance
  Repairs and maintenance
 Accounting fees

Income
Income is revenue received by the business from its operations.

These include:

 Sales
 Rent received
 Commission received
 Fees received
 Dividends received

Account Name Account type Usual account balance

accounts receivable current asset debit

capital owners’ equity credit

cost of goods sold expense debit

rent received income credit

bank overdraft current liability credit

motor vehicles non-current asset debit

petty cash current asset debit

Sales income credit

interest paid expense debit

accounts payable current liability credit

Drawings owner’s equity debit

repairs & maintenance expense debit

computer equipment non-current asset debit

electricity expense debit

Inventory
Transaction Accounts Type of Account Effect of Double Entry Required
Affected Transaction
Bought motor vehicle Motor vehicles Asset Increased Debit motor vehicles
on credit
GST Paid Asset Increased Debit GST paid

Accounts Payable Liability Increased Credit accounts payable

Paid for motor vehicle Accounts payable Liability Decreased Debit accounts payable
previously purchased on
credit Bank Asset Decreased Credit bank

Paid cash for advertising Advertising Expense Increased Debit advertising

GST Paid Asset Increased Debit GST paid

Bank Asset Decreased Credit bank

Purchased goods for Inventory Asset Increased Debit inventory

cash
GST paid Asset Increased Debit GST paid

Bank Asset Decreased Credit bank

Sold goods for cash Bank Asset Increased Debit bank

Sales Revenue Increased Credit sales

GST collected Liability Increased Credit GST collected

Cost of goods sold Expense Increased Debit cost of goods sold

Inventory Asset Decreased Credit inventory

Purchased goods on Inventory Asset Increase Debit inventory

credit
GST paid Asset Increase Debit GST paid

Accounts payable Liability Increase Credit accounts payable

Sold goods for credit Accounts Asset Increased Debit accounts receivable
receivable

Sales Revenue Increased Credit sales

GST collected Liability Increased Credit GST collected

Cost of goods sold Expense Increased Debit COGS

Inventory Asset Decreased Credit inventory

Customer returned over- Sales (returns) Revenue Decreased Debit sales
supplied goods
GST collected Liability Decreased Debit GST collected

Accounts Asset Decreased Credit accounts receivable

receivable

Inventory Asset Increased Debit inventory

Cost of goods sold Expense Decreased Credit COGS

Paid accounts payable Accounts payable Liability Decreased Debit accounts payable

Bank Asset Decreased Credit bank

Received interest from Bank Asset Increased Debit bank

the bank
Interest received Revenue Increased Credit interest received

Received payment from Bank Asset Increased Debit bank

customer who
previously bought Accounts Asset Decreased Credit accounts receivable
goods on credit receivable

Paid telephone account Telephone Expense Increased Debit telephone

GST Paid Asset Increased Debit GST paid

Bank Asset Decreased Credit bank

Received rent from Bank Asset Increased Debit bank

tenant
Rent received Revenue Increased Credit rent received

GST collected Liability Increased Credit GST collected

Received invoice from Inventory Asset Increased Debit inventory

supplier
GST paid Asset Increased Debit GST paid

Accounts payable Liability Increased Credit accounts payable

Paid supplier for earlier Accounts payable Liability Decreased Debit accounts payable
credit purchase
Bank Asset Decreased Credit bank

Owner introduced Bank Asset Increased Debit bank

additional capital of
cash and office furniture Office furniture Asset Increased Debit office furniture

Capital Owners’ equity Increased Credit capital

Owner withdrew goods Drawings Owners’ equity Decreased Debit drawings
from business for
personal use Inventory Asset Decreased Credit inventory

GST paid Asset Decreased Credit GST paid

Owner withdrew cash Drawings Owners’ equity Decrease Debit drawings

for personal reasons
Bank Asset Decrease Credit bank

Computer Asset Increased Debit computer

Purchased computer
and office equipment Office equipment Asset Increased Debit office equipment
for cash
GST Paid Asset Increased Debit GST Paid

Bank Asset Decreased Credit bank

Paid wages Wages Expense Increased Debit wages

Bank Asset Decreased Credit bank

Paid motor vehicle Motor vehicle Expense Increase Debit motor vehicle
repairs repairs repairs

GST paid Asset Increase Debit GST paid

Bank Asset Decrease Credit bank

Purchased milk for Staff Amenities Expense Increase Debit staff amenities
morning tea (no GST
applicable) Bank Asset Decrease Credit bank

Purchased cleaning Cleaning supplies Expense Increase Debit cleaning supplies

supplies
GST paid Asset Increase Debit GST paid

Bank Asset Decrease Credit bank

Debit

Increases Decreases
Asset account Liability account
Expense account Equity account
Loss account Revenue account
Gain account

Credit

Increases Decreases
Liability account Asset account
Equity account Expense account
Revenue account Loss account
Gain account