Interpreting Accounts & Their Balances (Edexcel IGCSE Accounting)
Accounts for Assets
Spec point —
IGCSE_ACCOUNTING:S2.134
How do I interpret ledger accounts for non-current assets?
- At the start of an accounting period, the balance on an asset account will be on the debit side
| Account is debited when: | Account is credited when: |
|---|---|
| - More of the non-current asset is purchased | - The non-current asset is sold |
How do I interpret ledger accounts for trade receivables?
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At the start of an accounting period, the balance on a trade receivables account will usually be on the debit side
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A trade receivable account could start on the credit side
- If the credit customer has returned goods to the business
- And the goods have already been paid for
- But the business has not yet refunded the credit customer
| Account is debited when: | Account is credited when: |
|---|---|
| - The customer buys more goods on credit - Interest is charged for an overdue balance - A cheque received from a customer is dishonoured - The business refunds the customer for goods that have already been paid for | - The credit customer pays an invoice to the business - Cash discount is allowed to the customer by the business - The customer returns some goods |
Accounts for Liabilities
Spec point —
IGCSE_ACCOUNTING:S2.134
How do I interpret ledger accounts for liabilities?
- At the start of an accounting period, the balance on a liability account will be on the credit side
| Account is debited when: | Account is credited when: |
|---|---|
| - The business repays some of its loan | - The business borrows more money from the lender |
How do I interpret ledger accounts for trade payables?
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At the start of an accounting period, the balance on a trade payable account will usually be on the credit side
-
A trade payable account could start on the debit side
- If the business has returned goods to a credit customer
- And the goods have already been paid for
- But the credit supplier has not yet refunded the business
| Account is debited when: | Account is credited when: |
|---|---|
| - The business pays an invoice to the credit supplier - Cash discount is received by the business form the supplier - The business returns some goods | - The business buys more goods on credit - Interest is charged for an overdue balance - A cheque sent to a supplier is returned - The supplier refunds the business for goods that have already been paid for |
Accounts for Expenses & Incomes
Spec point —
IGCSE_ACCOUNTING:S2.134
How do I interpret ledger accounts for expenses?
-
At the start of an accounting period, the balance on an expense account should be zero
- Unless there is an accrued or prepaid expense
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There could be a starting balance on the debit side
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if the business has made an early payment toward the expense for the current period
- This is called a prepaid expense
-
-
There could be a starting balance on the credit side
-
if the business still owes money for an expense for the previous period
- This is called an accrued expense
-
| Account is **debited **when: | Account is** credited** when: |
|---|---|
| - The business pays the expense | - The balance is transferred to the income statement at the end of the accounting period |
How do I interpret ledger accounts for incomes?
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At the start of an accounting period, the balance on an income account should be zero
- Unless there is accrued or prepaid income
-
There could be a starting balance on the debit side
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if the business is waiting for money that should have been received in the previous period
- This is called accrued income
-
-
There could be a starting balance on the credit side
-
if the business receives payments early for the current period
- This is called prepaid income
-
| Account is debited when: | Account is credited when: |
|---|---|
| - The balance is transferred to the income statement at the end of the accounting period | - The business receives the income |
Accounts for Equity & Drawings
Spec point —
IGCSE_ACCOUNTING:S2.134
How do I interpret ledger accounts for drawings?
- At the start of an accounting period, the balance on the drawings account will be zero
| Account is debited when: | Account is **credited **when: |
|---|---|
| - The owner takes money from the business for personal use - The owner** takes goods** from the business for personal use | - The balance is transferred to the equity account at the end of the accounting period |
How do I interpret ledger accounts for equity?
- At the start of an accounting period, the balance on the equity account will be on the credit side
| Account is **debited **when: | Account is **credited **when: |
|---|---|
| - A** loss** is transferred from the income statement - The balance from the drawings account is transferred | - The owner introduces money into the business - A** profit** is transferred from the income statement |
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