ELEMENTS OF FINANCIAL STATEMENTS AND THEIR NATURE BALANCE

1. ASSETS-Dr balance
2. LIABILITIES-Cr balance
3. EXPENSES-Dr balance
4. REVENUE-Cr balance
5. DRAWING-Dr balance
6. OWNERS EQUITY /CAPITAL-Cr balance

INCREASE AND DECREASE OF ACCOUNTS

The accounts with debit balance
1. ASSETS-Dr balance
If an asset increase debit it
If an asset decrease Credit it

2. EXPENSES-Dr balance
If expense increase debit it
If expense decrease Credit it

3. DRAWING-Dr balance
If drawing increase debit it
If drawing decrease Credit it

The accounts with credit balance

4. LIABILITIES-Cr balance
If liability increases credit it
If liability decreases debit it

5. REVENUE-Cr balance
If revenue increases credit it
If revenue decreases debit it

6. OWNERS EQUITY /CAPITAL-Cr balance

If capital increases credit it
If capital decreases debit it

QUESTION 1
State which side is to be increased and which is to be decreased and nature balance of the following
ITEMS DEBIT CREDIT NATURE BALANCE
1 ASSETS
2 LIABILITIES
3 EXPENSES
4 REVENUE
5 DRAWING
6 CAPITAL

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QUESTION 3
Classify the items listed into their classes and their nature balances
Classes are
• Assets
• Liabilities
• Expenses
• Revenue
Nature balances are
• Debit
• Credit
Items CLASS INCREASE DECREASE NATURE
BALANCE
e.g. Land and Building Asset debit credit Debit
Discount received
Furniture
Stock
debtors
creditors
Bank overdraft
Cash in hand
NBC Loan
Sales
Carriage inward
Carriage outward
Rent received
Interest on NBC Loan
Discounts Allowed
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Wages and salaries
Water and electricity bill
Premises

QUESTION 4
In each of the following transactions of Mals a sole trader, identify what account is to be
increased and what account is to be decreased.
No. TRANSACTIONS Increase Decrease
1 Owner bring cash to start business
2 Goods (merchandise) bought by cheque
3 Purchased goods on credit from James
4 Cash paid to supplier of goods-James
5 Cash sales
6 Goods sold on credit to customer Martha
7 Cheque received from customer Martha.
8 Purchased Building by Cheque.
9 Cash deposited into Bank
10 Cash withdrawn from Bank
11 Cash taken by the owner for her private use
12 Goods taken by Mals for her own sake
13 Rent expenses paid in cash
14 commission received by cheque

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