In the first transaction, the we invest $100,000 into the company. What individual accounts are affected? The first one we should notice is cash, as cash is being invested in the company by the owners. The other account that is affected is capital or common stock. And we'll use common stock because the owners now have $100,000 ownership or right to the company.

So cash is increasing and cash is an asset. To increase an asset we debit it. So we would debit cash for $100,000. Common stock, on the other hand, is an owner's equity account. It increases owner's equity and to increase anything on the right side of the equation we credit it.

In the second transaction, we purchase a six month insurance policy in advance for $2,400. So this means we will be insured for the next six months. So is this an expense? No, because we haven't used it up. In theory, someone owes us insurance. They need to insure us for the next six months. And when somebody owes us something, that's an asset. So we'll debit the account called prepaid insurance. And on the other side, cash is decreasing, so we'll credit cash.

In the third transaction we purchased $50,000 worth of equipment, paying $10,000 cash and the rest on account. Here's a situation where more than one account is affected. But ultimately, the same rules apply. Debits must equal credits. We're purchasing equipment, so equipment is being increased; we'll debit equipment for the $50,000. But we're only paying cash of $10,000 so cash is decreasing; we credit cash. We're also taking on debt in the form of a note, which we're going to pay interest on later. And we'll talk about that later. We're increasing liability, so we do what with it? We credit notes payable.

In the fourth transaction we purchase supplies on account for $4,000. In this case, we're increasing an asset, supplies, and also increasing what we owe to a creditor, maybe Staples or Walmart or something like that. So we would debit supplies (increasing an asset), and credit accounts payable (increasing a liability).

In the fifth transaction we purchased a truck for cash, $20,000. Here's a situation where we have two accounts affected on the same side of the equation. We're increasing one asset, a truck, and decreasing another asset, cash. So we'll debit the truck and credit the cash.

For the sixth transaction we provided a service on account for $10,000. In this case, we provided a service but have not been paid for it yet. It is a revenue because we recognize revenues when we earn them, not when we're paid. Revenues increase owner's equity, so we would credit revenue. And because somebody owes us money, we would debit accounts receivable.

In the seventh transaction we received $2,000 from a customer in the last transaction. So the customer we've already provided services for pays us a portion of debt owed. Because we've already recorded the revenue when we earned it, we just need to record the receiving of cash. So we would debit cash and credit accounts receivable, decreasing it because they no longer owe us that $2,000.

In the eighth transaction we paid $2,000 on account from transaction three. We're paying off some of the debt we owe to our creditor. Liabilities are decreasing because we no longer owe them the $2,000 that we paid. And of course, cash is also the decreased by the $2,000. So we would debit accounts payable and credit cash.

In the ninth transaction we provided a service and received cash for $5,000. This time we receive the cash when we perform the service, so we can just debit cash and credit the revenue account.

In the tenth transaction we received a $10,000 advance payment for services to be rendered in the future. This time we receive payment before we actually perform the service. It a liability because we owe somebody service. We call this an unearned revenue and we would credit it because we're increasing a liability. We would then of course debit cash because we are being paid $10,000.

PLEASE keep in mind that Unearned Revenue is a liability account on the Balance Sheet. Another name for this Unearned Revenue account is called Deferred Revenue. They all mean the same thing: a company already receive cash from its customers, but hasn’t provided the related goods and/or services.

In the eleventh and final transaction we pay a $500 electric bill. We pay cash for our electric and cash is going down so we credit it. We've also already used up the electric so it's an expense because of the matching principle. Expenses decrease owner's equity so we debit them. In this case we would call it utilities expense.