Interpreting Accounts and Their Balances (Cambridge International A-Level Accounting)
Exam board Cambridge International · A-LevelUpdated 2026-02-05
Accounts for assets
How do I interpret asset accounts in the ledger?
Non-current assets
-
The business has an account for each type of non-current assets in the general ledger
- Such as vehicles, machinery, office equipment etc
| The balance is: | - Always on the debit side |
|---|---|
| The account is debited when: | - Non-current assets are purchased |
| The account is credited when: | - Non-current assets are sold |
Trade receivables
- The business has an account for each credit customer in the sales ledger
| The balance is: | - Usually on the debit side - May be on the credit side if: - the credit customer has returned goods to the business that have already been paid for - the credit customer has overpaid |
|---|---|
| The account is debited when: | - The customer buys more goods on credit - Interest is charged for an overdue balance - A cheque received from a customer is dishonoured - The business refunds the customer for goods that have already been paid for |
| The account is credited when: | - The credit customer pays an invoice to the business - Cash discount is allowed to the customer by the business - The customer returns some goods |
Inventory
-
The business has an account for inventory in the general ledger
- It is not used day-to-day
| The balance is: | - Always on the debit side |
|---|---|
| The account is debited when: | - Transferring the closing inventory from the statement of profit and loss |
| The account is credited when: | - Transferring the opening inventory to the statement of profit and loss |
Bank
- The business has an account for bank in the general ledger
| The balance is: | - On the debit side if there is money in the bank - On the credit side if it is overdrawn |
|---|---|
| The account is debited when: | - The business receives money in the bank - The business deposits cash into the bank |
| The account is credited when: | - The business pays money from the bank - The business withdraws cash from the bank |
Cash
- The business has an account for cash in the general ledger
| The balance is: | - Always on the debit side |
|---|---|
| The account is debited when: | - The business receives cash |
| The account is credited when: | - The business pays cash |
Accounts for liabilities
How do I interpret liability accounts in the ledger?
Loan accounts
- The business has an account for each loan in the general ledger
| The balance is: | - Always on the credit side |
|---|---|
| The account is debited when: | - The business repays some of the initial amount |
| The account is credited when: | - The business takes out the loan |
Trade payables
- The business has an account for each credit supplier in the purchases ledger
| The balance is: | - Usually on the credit side - May be on the debit side if: - the business has returned goods to the supplier that have already been paid for - the business has overpaid the supplier |
|---|---|
| The account is debited when: | - The business pays an invoice to the credit supplier - Cash discount is received by the business from the supplier - The business returns some goods |
| The account is credited when: | - The business buys more goods on credit - Interest is charged for an overdue balance - A cheque sent to a supplier is returned - The supplier refunds the business for goods that have already been paid for |
Accounts for expenses & incomes
How do I interpret expense accounts in the ledger
Purchases
-
The business has an account for purchases in the general ledger
- It is used to record the purchases of goods
| The balance is: | - Always on the debit side |
|---|---|
| The account is debited when: | - The business buys goods |
| The account is credited when: | - The balance is being transferred to the statement of profit and loss |
Purchases returns (returns outwards)
-
The business has an account for purchases returns in the general ledger
- It is used to record the returns of goods to suppliers
- It is can be viewed as the entries that would reduce the purchases account
| The balance is: | - Always on the credit side |
|---|---|
| The account is debited when: | - The balance is being transferred to the statement of profit and loss |
| The account is credited when: | - The business returns goods to suppliers |
Expense accounts
-
The business has an account for each expense in the general ledger
- Expenses include discount allowed, rent paid, carriage inwards, carriage outwards, etc
| The balance is: | - Usually on the debit side - May be on the credit side if the business is in arrears |
|---|---|
| The account is debited when: | - The business pays or allows the expense |
| The account is credited when: | - The balance is being transferred to the statement of profit and loss |
How do I interpret income/revenue accounts in the ledger?
Sales
-
The business has an account for sales in the general ledger
- It is used to record the sales of goods
| The balance is: | - Always on the credit side |
|---|---|
| The account is debited when: | - The balance is being transferred to the statement of profit and loss |
| The account is credited when: | - The business sells goods |
Sales returns (returns inwards)
-
The business has an account for sales returns in the general ledger
- It is used to record the returns of goods from customers
- It is can be viewed as the entries that would reduce the sales account
| The balance is: | - Always on the debit side |
|---|---|
| The account is debited when: | - The business receives returned goods from customers |
| The account is credited when: | - The balance is being transferred to the statement of profit and loss |
Income/revenue accounts
-
The business has an account for each form of income or revenue in the general ledger
- Incomes include discount received, rent received, etc
| The balance is: | - Usually on the credit side - May be on the debit side if the business is owed money |
|---|---|
| The account is debited when: | - The balance is being transferred to the statement of profit and loss |
| The account is credited when: | - The business receives the income |
Accounts for capital & drawings
How do I interpret capital/equity accounts in the ledger?
Drawings
- The business has an account for drawings in the general ledger
| The balance is: | - Always on the **debit **side |
|---|---|
| The account is debited when: | - The owner takes money from the business for personal use - The owner** takes goods** from the business for personal use - The owner transfers a non-current asset from the business to themselves |
| The account is credited when: | - The balance is being transferred to capital account |
Capital
- The business has an account for capital in the general ledger
| The balance is: | - Always on the **credit **side |
|---|---|
| The account is debited when: | - A** loss** is being transferred from the statement of profit or loss - The balance from the **drawings **account is being transferred |
| The account is credited when: | - A** profit** is being transferred from the statement of profit or loss - The owner introduces money into the business - The owner transfers a personal non-current asset to the business |
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