Accounting · WAC11 (Unit 1)

Double entry and the accounting equation

Every transaction has two sides. Double-entry bookkeeping records both, so the books always balance.

The accounting equation

Assets = Capital + Liabilities. Every transaction keeps this equation true.

Debits and credits

Each transaction is recorded as a debit in one account and a credit of the same amount in another.

Debit: increase in an asset or expense; decrease in a liability, capital or income
Credit: increase in a liability, capital or income; decrease in an asset or expense

The trial balance

Totalling all debit and credit balances gives a trial balance. If the totals agree, the arithmetic of the double entry is probably right, though some errors (such as a transaction left out completely) do not show up.

Worked example

A business buys equipment for $2,000 cash. Record the double entry.

Equipment (an asset) increases: debit.
Cash (an asset) decreases: credit.

Answer: Debit Equipment $2,000; Credit Cash $2,000.

Key idea: Assets = Capital + Liabilities. Debit assets and expenses up; credit liabilities, capital and income up.

Check yourself

Assets are $50,000 and liabilities are $20,000. Find capital.
Show answer
$30000. Capital = Assets - Liabilities = $30,000.
Rent of $500 is paid by bank transfer. Which account is debited?
- Bank
- Capital
- Rent (expense)
- Sales
Show answer
Rent (expense). An expense increases, so debit Rent; credit Bank.
Goods are sold on credit to a customer. Which account is credited?
- Sales
- The customer (trade receivable)
- Purchases
- Bank
Show answer
Sales. Income (sales) increases: credit Sales; debit the customer's account.
Which error would NOT be revealed by a trial balance?
- A debit entered without a credit
- A wrong addition in one account
- A balance copied to the wrong side
- A transaction left out completely
Show answer
A transaction left out completely. An error of omission affects neither side, so the totals still agree.
A business takes out a bank loan, received into its bank account. The effect is
- assets and liabilities both increase
- assets increase and capital decreases
- liabilities decrease
- no change to assets
Show answer
assets and liabilities both increase. Bank (asset) up, loan (liability) up by the same amount.

Practise with instant feedback

Sources

Pearson Information Manual 2026/2027: International A level

Last updated 7 November 2026. Spotted a mistake? Email alevel@lifereadysociety.com.