Applying The Rule of Debit and Credit - Example 3

Example 3.  Bought furniture worth £6000 on credit (ie,payment will be made later)from GK Furniture

Step 1- Identify the two accounts involved in this transaction

1.      Asset Account (furniture is an asset)

2.     liability Account (here the liability account is GK furniture. As the purchase is on credit, business is having liability to pay in future to GK Furniture)

Step 2- Understand the nature of the impact of the transaction on the two accounts (furniture(asset) and GK Furniture (Liability))

     Purchase of furniture made the asset increase by £6000

Liability towards GK Furniture has arisen(increased) by £6000

Step 3- Decide which account is to be debited and which is to be credited.

            We know that;

When asset account (furniture) increases it is to be Debited and,

When liability account (GK Furniture) increases it is to be credited

So, entry is:

Debit Furniture Account with £6000

Credit GK Furniture Account with £6000