The Cash account is an asset account. The accounting principle for Cash account is the following: cash receipts, i.e., cash increases - are recorded on the debit side and cash payments, i.e., cash decrease - are recorded on the credit side of the account. All other financial assets accounts are treated in a similar way.
The opening balance and transactions increasing financial assets are recorded on the debit side of financial assets accounts and transactions reducing financial assets on the credit side.
Bank account is an asset account. When a company transfers funds to a bank account or customers pay directly into the account, all contributions are recorded to the debit side of the account, and all withdrawals or account payments are recorded to the credit side.
Accounts receivable is an asset account that monitors changes in receivables. The invoice sent to the customer leads to the increase in receivables and is recorded on the debit side of the Accounts receivable account at the time of its appearance; and the payment received leads to the decrease in receivables and is recorded on the credit side of the Accounts receivable account at the time of payment.
The principle of the accounting for asset accounts is as follows:
| Name of the account | |
| Debit | Credit |
|
Opening balance
+ 20 EUR
|
- 10 EUR
Decrease
|
|
Increase
+ 20 EUR
|
- 30 EUR
Decrease
|
|
Increase
+ 110 EUR
|
- 60 EUR
Decrease
|
|
Increase
+ 60 EUR
|
110 EUR
Closing balance
|
|
Total
210 EUR
|
210 EUR
Total
|
In the Financial asset accounts: debit entries increase and credit entries decrease the balance.
Financial asset accounts are the debit balance accounts, i.e., they always have normal debit balances.
The closing balances of the financial assets’ accounts indicate how much money company has in the Cash Register (cash in hand), in the Bank Account (cash at bank), or how many receivables the company has, etc. If there are balances at the financial assets’ accounts, they are always debit balances. If, under any circumstances, your account shows a credit balance, there is an entry or calculation error.
EXAMPLE: Accounts receivable entries may be the following:
| Accounts receivable | |||
| Date | Business transaction | Debit | Credit |
| 01.01.20.. | Opening balance | 2 600 EUR | |
| 08.01.20.. | The goods are sent to the Mäkinen T. according to the invoice | 740 EUR | |
| 13.01.20.. | Received payment in cash from Koskinen P. | 1 000 EUR | |
| 17.01.20.. | The goods are sent to the Järvinen T. according to the invoice | 160 EUR | |
| 22.01.20.. | Received payment in cash from Mäkinen T. | 740 EUR | |
| 30.01.20.. | Closing balance | 1 760 EUR | |
| Total | 3 500 EUR | 3 500 EUR | |
In our case the account is closed at the end of the month, but usually it has to be done at the end of the financial year.