10 Example of Double Entry Accounting (with Debits & Credits)
➡️ What is Double Entry Accounting?
Pretty much the foundation of Accounting - it shows how every transaction affects a business in 2 areas
This is often times summarized via Debits & Credits, which are used to explain increases/decreases across different accounts
➡️ What are 10 examples?
1️⃣ Investing money in a business
Debit Cash (Asset) ⬆️
Credit Common / Preferred Stock (Equity) ⬆️
2️⃣ Generating a sale - cash basis
Debit Cash (Asset) ⬆️
Credit Sales ( Revenue) ⬆️
3️⃣ Generating a sale - accrual basis
When cash is collected:
Debit Cash (Asset) ⬆️
Credit Deferred Revenue (Liability) ⬆️
When products/services are rendered:
Debit Deferred Revenue (Liability) ⬇️
Credit Income (Revenue) ⬆️
4️⃣ Purchasing legal services via AP
Debit Legal Expense ⬆️
Credit Accounts Payable ⬆️
5️⃣ Purchasing a 12-month subscription
Debit Prepaid Expenses (Asset) ⬆️
Credit Cash (Asset) ⬇️
6️⃣ Converting inventory to COGS
Debit Cost of Goods Sold ⬆️
Credit Inventory ⬇️
7️⃣ Recording an accrued expense
Debit expense account ⬆️
Credit Accrued Expenses ⬆️
8️⃣ Depreciating a fixed asset
Debit Depreciation (Expense) ⬆️
Credit Accumulated Depreciation (Contra-asset) ⬆️
9️⃣ Paying off debt
Debit Debt (Liabilities) ⬇️
Credit Cash (Asset) ⬇️
🔟 Paying employees
Debit Payroll accounts (Expense) ⬆️
Credit Cash (Asset) ⬇️
These were the 10 examples of Debits and Credits in the Double Entry Accounting.
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