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).
Asset accounts in double-entry bookkeeping
- Income accounts: what the business has earned
- Expense accounts: the business's day-to-day running costs
- Asset accounts: what the business owns
- Liability accounts: what the business owes
- Capital accounts: what is owed to or by the business owner.
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:
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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.