Recording Other Transactions

Purchase of a non-current asset

Purchase of a non-current asset

How do I record the purchase of a non-current asset in the ledger accounts?

• Debit the non-current asset account in the nominal ledger

  • The asset is increasing

• Either credit the cash or bank account in the nominal ledger

  • If the business pays upfront

  • The asset is decreasing

• Or credit a liability account in the nominal ledger

  • If the business buys the asset on credit

  • The name of the account is the name of the lender

  • The liability is increasing

What other transactions are included in a non-current asset account?

• The only other transaction that is included in a non-current asset account is its sale or disposal

  • It will be credited with the original cost of the non-current asset

  • A disposal account will be needed to show the profit or loss of the sale

• Depreciation will be recorded in a separate account

Taking out a loan

Taking out a loan

How do I record taking out a loan in the ledger accounts?

• Debit the bank account

  • The asset is increasing

• Credit a loan account

  • The liability is increasing

How do I record interest on a loan in the ledger accounts?

• Loan interest is an expense

• Credit the bank account

  • The asset is decreasing

• Debit the loan interest account

  • The profit is decreasing

  • The capital is decreasing

• Do not make any entries for this in the loan account

  • The amount borrowed has not changed

Receiving incomes & paying expenses

Receiving incomes & paying expenses

What types of income could a business receive?

• A business will receive income from their sales of goods or services

• A business can also receive other income such as:

  • Rent 

  • Commission

How do I record the receipt of an income in the ledger accounts?

• Debit the cash or bank account

  • The asset is increasing

• Credit the income account

  • The profit is increasing

  • The capital is increasing

What types of expenses could a business pay?

• The purchase of goods is an expense to a business

• A business can also incur other expenses such as:

  • Rent

  • Commission

  • Rates

  • Wages

  • General expenses

• If a business receives income from rent and also pays rent then separate accounts are used

  • Rent payable is the expense account

  • Rent receivable is the income account

How do I record the payment of an expense in the ledger accounts?

• Credit the cash or bank account

  • The asset is decreasing

• Debit the expense account

  • The profit is decreasing

  • The capital is decreasing

Taking drawings & introducing capital

Taking drawings & introducing capital

How do I record the owner taking drawings in the ledger accounts?

• The owner could take assets from the business for personal use:

  • Money

  • Goods

  • Non-current assets 

    • Such as vehicles

• Credit the relevant account

  • Cash or bank account if money is taken

  • Purchases account if goods are taken

  • Non-current asset account if a vehicle or machinery is taken

    • The asset is decreasing

• Debit the drawings account

  • The capital is decreasing

How do I record the owner introducing capital in the ledger accounts?

• The owner might put some of their own money into the business or donate an asset to the business

• Debit the cash, bank or asset account

  • The asset is increasing

• Credit the capital account

  • The capital is increasing