Entries when new assets are bought from bank account
When new assets are bought from a bank account, the following entries are typically made:
Debits:
- Cash Account: The cash account is debited to reflect the reduction in cash balance.
- Asset Account: The asset account (e.g. Equipment, Inventory, etc.) is debited to reflect the increase in assets.
Credits:
- Bank Account: The bank account is credited to reflect the decrease in bank balance.
Example:
Suppose a company buys a new piece of equipment for $10,000 from its bank account.
Debits:
- Cash Account: $10,000
- Equipment Account: $10,000
Credits:
- Bank Account: $10,000
The journal entry would be:
Debits:
- Cash Account: $10,000
- Equipment Account: $10,000
Total Debits: $20,000
Credits:
- Bank Account: $10,000
Total Credits: $10,000
Net Change: $10,000 (Debits > Credits)
The cash account is reduced by $10,000, and the equipment account is increased by $10,000. The bank account is reduced by $10,000, reflecting the decrease in cash balance.
Note: The above example assumes that the company is using the accrual accounting method, where expenses are matched with revenues in the same period. If the company is using the cash accounting method, the expense would be recognized when the cash is paid, rather than when the asset is purchased.