The Five Accounting Elements
There are five fundamental elements within accounting. These elements are as follows: Assets, Liabilities, Equity, Income and Expenses. Income is also called Revenue. The five accounting elements are all affected in either a positive or negative way. It is important to note that a credit transaction does not always dictate a positive value or increase in a transaction and similarly, a debit does not always indicate a negative value or decrease in a transaction. An asset account is often referred to as a "debit account" due to the account's standard increasing attribute on the debit side. When an asset has been acquired in a business such as a delivery vehicle, the transaction will affect the debit side of that asset account illustrated below:
| Asset | |
|---|---|
| Debits (dr) | Credits (cr) |
| X | |
The "X" in the debit column denotes the increasing effect of a transaction on the asset account balance (total debits less total credits), because a debit to an asset account is an increase. The asset account above has been added to by a debit value X, i.e. the balance has increased by £X or $X. Likewise, in the liability account below, the X in the credit column denotes the increasing effect on the liability account balance (total credits less total debits), because a credit to a liability account is an increase.
All "mini-ledgers" in this section show standard increasing attributes for the five elements of accounting.
| Liability | |
|---|---|
| Debits (dr) | Credits (cr) |
| X | |
| Income | |
|---|---|
| Debits (dr) | Credits (cr) |
| X | |
| Expenses | |
|---|---|
| Debits (dr) | Credits (cr) |
| X | |
| Equity | |
|---|---|
| Debits (dr) | Credits (cr) |
| X | |
Summary table of standard increasing and decreasing attributes for the five accounting elements:
| ACCOUNT TYPE | DEBIT | CREDIT |
|---|---|---|
| Asset | + | − |
| Liability | − | + |
| Income | − | + |
| Expense | + | − |
| Equity | − | + |
Read more about this topic: Debits And Credits
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