What are asset accounts?

Definition of asset accounts

Asset accounts are categories within the business's books that show the value of what it owns.

A debit to an asset account means that the business owns more (i.e. increases the asset), and a credit to an asset account means that the business owns less (i.e. reduces the asset).

Some asset accounts will be for capital assets and others for current assets.

Asset accounts in double-entry bookkeeping

In double-entry bookkeeping, there are five types of nominal accounts:

How debits and credits work for different accounts

To increase the amount in your business accounts, you need to debit some accounts and credit others. What you do depends on the kind of account you’re dealing with:

  • for an income account, you credit to increase it and debit to decrease it
  • for an expense account, you debit to increase it, and credit to decrease it
  • for an asset account, you debit to increase it and credit to decrease it
  • for a liability account you credit to increase it and debit to decrease it
  • for a capital account, you credit to increase it and debit to decrease it

Example of an asset account:

Example of an asset account in double-entry bookkeeping

When the business buys new computer equipment or a computer, the value of the asset account for computers goes up (a debit) and the amount in the bank account goes down (a credit). The document above shows the transactions in an example "Computer Hardware" asset account.

Got questions? Ask Emily!

FreeAgent's Chief Accountant Emily Coltman is available to answer your questions in the comments.

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