Five accounting elements:
- Assets (debit)
- Liabilities (credit)
- Equity/Capital (credit)
- Income (credit)
- Expenses (debit)
Drawings reduce Capital but are recorded in a separate Drawings account — debit to increase.
Debit/credit:
- Assets, Expenses, Drawings increase with debits.
- Liabilities, Equity, Income increase with credits.
(DEAD CLIC). When an element decreases, use the opposite side. Every transaction: total debits = total credits.
Recording a sale: Every sale requires two entries:
- a revenue entry (Dr Trade receivables/Cash in hand, Cr Sales revenue)
- a cost entry (Dr Cost of sales, Cr Inventory)
Accounting equation: Assets = Liabilities + Equity. Extended: Assets = Liabilities + Capital + Income − Expenses − Drawings. The equation always balances.
Accounting entity theory: The business and its owner are separate entities. Only record transactions that directly affect the business.
Key traps:
- Sales require two entries (revenue + cost).
- Drawings ≠ expense.
- Asset purchases ≠ expense.
- Returns to supplier affect Inventory and Trade payables only — not Sales returns.
- Owner pays trade payables from personal funds → capital contribution.