Double-entry Accounting System

4.3.12 Analysis of cash payment on account transaction

Event No. 12. On August 14, 20X6, Huske's Consultants paid the $400 owed to the local supply company (see Event No. 2). The cash payment acts to decrease assets (Cash) and liabilities (Accounts Payable). The decrease in assets is recorded as a credit, and the decrease in liabilities is recorded as a debit:

Illustration 4-24: Effect of cash payment on account in T accounts

Assets		=	Liabilities	+	Equity
Cash			Accounts Payable
	Credit (12) - 400		Debit (12) - 400

This is an asset use transaction:

Illustration 4-25: Effect of cash payment on account in the horizontal model

Assets	=	Liabilities	+	Equity	Rev.	-	Exp.	=	Net Inc.	Cash Flow
(400)	=	(400)	+	n/a	n/a	-	n/a	=	n/a	(400)	OA

4.3.13 Analysis of cleaning services on account transaction

Event No. 13. On September 18, 20X6 Huske's Consultants received $800 bill from SuperCleaners for cleaning the office. Mrs. Huske plans to pay the bill later. The event acts to increase liabilities and decrease equity. The increase in liabilities (Accounts Payable) is recorded as a credit, and the decrease in equity (Office Maintenance Expense) is recorded as a debit:

Illustration 4-26: Effect of cleaning services on account in T accounts

Assets	=	Liabilities		+	Equity
		Accounts Payable			Office Maintenance Expense
			Credit (13) + 800		Debit + Expense [ - Equity] (13) 800

This is a claims exchange transaction:

Illustration 4-27: Effect of cleaning services on account in the horizontal model

Assets	=	Liabilities	+	Equity	Rev.	-	Exp.	=	Net Inc.	Cash Flow
n/a	=	800	+	(800)	n/a	-	(800)	=	(800)	n/a

4.3.14 Analysis of cash distribution transaction

Event No. 14. On November 31, 20X6 Huske's Consultants distributed $300 in cash to the owner. The distribution acts to decrease assets and equity. The decrease in assets (Cash) is recorded as a credit, and the decrease in equity (Distribution) is recorded as a debit:

Illustration 4-28: Effect of cash distribution in T accounts

Assets		=	Liabilities	+	Equity
Cash					Distribution
	Credit (14) - 300				Debit + Dist. [ - Equity] (14) 300