Suppose for example you decide on a fixed asset purchase of new furniture for the business for 2,000 using cash.
How do you show the Fixed Asset Purchase?
The purchase of fixed assets transaction is shown in the accounting records with the following bookkeeping entries:
| Account | Debit | Credit |
|---|---|---|
| Fixed Assets | 2,000 | |
| Cash | 2,000 | |
| Total | 2,000 | 2,000 |
Fixed Asset Purchase Bookkeeping Entries Explained
Debit – What came into the business
New furniture came into the business following the fixed asset purchase.
Credit – What went out of the business
Cash went out of the business to pay for the purchase.
The Accounting Equation
The Accounting Equation, Assets = Liabilities + Capital means that the total assets of the business are always equal to the total liabilities of the business This is true at any time and applies to each transaction. For this transaction the Accounting equation is shown in the following table.
In this example one asset (fixed assets) increases as the furniture is brought into the business, and another asset cash decreases by the same amount as payment is made to the supplier.
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About the Author
Chartered accountant Michael Brown is the founder and CEO of Double Entry Bookkeeping. He has worked as an accountant and consultant for more than 25 years and has built financial models for all types of industries. He has been the CFO or controller of both small and medium sized companies and has run small businesses of his own. He has been a manager and an auditor with Deloitte, a big 4 accountancy firm, and holds a degree from Loughborough University.