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Chapter 3

Bookkeeping entries for the financial

statements

4.1 Debits and credits applied to the financial statements

Transactions are recorded on either the debit or the credit side of a ledger account
according to the following table:

Debit (Dr) Credit (Cr)
Increases in assets Decreases in assets

Decreases in liabilities Increases in liabilities
Decreases in capital Increases in capital

Increases in expenses Decreases in expenses
Decreases in income Increases in income

Entering transactions in ledger accounts is also called posting the transactions.

An expense is a cost connected with the day-to-day activities of the entity.

Examples of expenses include rent, local business tax, light and heat, wages and
salaries, postage, telephone i.e. costs of operating the business entity, along with the
cost of items bought for resale.

Income is the term used to describe the activities that will eventually lead to the entity
receiving money. The most common source of income is that derived from the sale of
its goods or services, but others include the receipt of interest on bank deposits.

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