Confused! Help required with Assets & Liabilities.

System
System Posts: 100,534 🤖 Admin 🤖
edited June 18 in AAT student discussion
Hi All,

I would very much appreciate it if someone could explain the PEARLS thing a bit more as I’m a little confused! I know that:

Purchases, Expenses, Assets are debits
Revenue, Liabilities, Sales are credits.

However, I would have thought that Assets would be in the same category as Revenue & Sales as they are all sorts of ‘assets’ of a business. And I thought that Liabilities would come under the same category as Purchases and Expenses as they are, well types of Liabilities of a business!

I would really appreciate a bit of an explanation on this one and maybe a definition on each of the items so that I can get my head round it as I am a distance learner (and having a bit of a blonde moment!)

Cheers folks

Tracey J

Comments

  • System
    System Posts: 100,534 🤖 Admin 🤖
    Re:Confused! Help required with Assets & Liabilities.

    Hi Tracey.

    Assets are defined as things the company 'owns', e.g. vehicles, money in bank, stock etc.

    When you make a sale you would credit the sales account as you have less stock, and debit the bank account as you have more money.

    When you purchase stock, you would debit purchases as you have more stock, and credit the bank account as you have less money.

    Scott.

  • System
    System Posts: 100,534 🤖 Admin 🤖
    Re:Confused! Help required with Assets & Liabilities.

    Tracy,

    This used to confuse me for a while and even though I've a handle on it now it still took a while to come up with a simple explaination.

    Oversimplifying...

    Assets are like expenses and sales in as much as an increase(dr) will result in a decrease in an asset (eg cr cash) or an increase in a liability (cr liability).

    Conversely, liabilties are like sales and revenues as an increase (cr) will result in an increase in an asset (eg dr cash).

    OK, it's more complicated than that but that's one rationale anyway. Hope that makes some kind of sense.

    Chris
  • System
    System Posts: 100,534 🤖 Admin 🤖
    Re:Confused! Help required with Assets & Liabilities.

    Many thanks Scott & Chris,

    Both of your responses have clarified things a bit more for me. I always find it useful getting another persons perspective!

    Cheers

    Tracey
  • System
    System Posts: 100,534 🤖 Admin 🤖
    Re:Confused! Help required with Assets & Liabilities.
    When you make a sale you would credit the sales account as you have less stock, and debit the bank account as you have more money.

    It has never made more sense than that to me. Thanks so much! I still have to think through the processes, but just reading this sentence has made it so much clearer.
  • System
    System Posts: 100,534 🤖 Admin 🤖
    Re:Confused! Help required with Assets & Liabilities.

    Remember:

    If an Asset increases it is a Debit
    If it decreases it is a Credit

    If a Liability/Capital increases it is a Credit
    If decreases it is a Debit

    Scott.

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