Let’s try something with an income or expense account. Remember that income and expense accounts are a part of the owner's equity portion of the accounting equation. Remember from chapter one that to increase the owner's equity account, we credit it. Since income accounts represent money coming into the business, they will provide an increase to owner's equity since the owner now owns more money or property. Therefore, increases to income accounts are credits. However, expense accounts are debited since they represent costs to the business and therefore less money or property the business owns.
Suppose we buy office supplies (paper, staples, and so forth) with cash. The transaction will look like so.
Cash Supplies Expense
Before proceeding, I should note that there are two ways to account for supplies (office supplies, for instance). One method is to record them as an asset if they will not be used up rather soon, perhaps within the year. Another method is as is done above. If they will be used up, perhaps within a month or two, then they could be expensed rather than recorded as an asset.
If we sell a lawnmower we purchased for resale, the transaction will look like so:
Cash Income
