Applying the Rule of Debit and Credit- Example 2

Example 2.  Bought furniture worth £5000 for cash

Step 1- Identify the two accounts involved in this transaction

1.      Asset Account (furniture is an asset)

2.      Asset Account (cash is an asset)

Step 2- Understand the nature of the impact of the transaction on the two accounts (assets- furniture and cash)

     Purchase of furniture made the asset increase by £5000

Cash is decreased by £5000

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 asset account (here it is cash) decreases it is to be credited

So, entry is:

Debit Furniture Account with £5000

Credit Cash Account with £5000