Journal Entry for Asset Purchase

---

Previous lesson: Bank Loan Journal Entry 
Next lesson: Journal Entry for Drawings

---

In this lesson we're going to cover the journal entry for purchasing an asset through our sample business, George's Catering. We'll first look at how this transaction affects the accounting equation and then work out the debit and credit entry.

Asset Purchase Example

Up to now George invested $15,000 capital in his business and secured a $5,000 loan from the bank. He has $20,000 available in his business bank account.

The business's accounting equation and financial position stood as follows:

c) Now George wants to actually set up his business. He decides to buy some baking equipment for his catering business so that he can cook various foods. The equipment costs $12,000. He pays this in cash. What do we do?

Okay, so first of all, here is an analysis of the assets of George’s Catering before and after the above transaction: 

As we are essentially swapping one asset for another, the total of the assets does not change, only the value of the individual assets.

Our accounting equation is affected as follows: 

What has changed here?

Liabilities are the same - external parties still have a claim of $5,000 of the business’s assets. And the owner still owns $15,000 of the $20,000 assets.

The only thing that has changed is the mixture of assets: the $20,000 worth of assets is now made up of baking equipment to the value of $12,000, and $8,000 cash.

Journal Entry

Here's the full journal entry for purchasing the baking equipment: 

Baking equipment is an asset for George's Catering.

And this baking equipment has increased: from $0 to $12,000.

Assets increase on the debit side (left).

So, we debit baking equipment.

At the same time, our bank account (cash) is also an asset.

But bank has decreased.

On which side does an asset decrease on?

Well, if it increased on the debit side (left), then it must decrease on the credit side (right).

So, bank is credited.

Test Yourself!

Before you start, I would recommend to time yourself to make sure that you not only get the questions right but are completing them at the right speed.

Difficulty Rating:
Beginner

Quiz length: 
3 questions

Time limit:
4 minutes

Important: The solution sheet on the following page only shows the solutions and not whether you got each of the questions right or wrong. So before you start, get yourself a piece of paper and a pen to write down your answers. Once you're done with the quiz and writing down your answers, click the Check Your Answers button at the bottom and you'll be taken to our page of solutions.

Good luck!

This Form cannot be submitted until the missing fields (labelled below in red) have been filled in
Asset Purchase Journal Entry Mini Quiz:
Please note that all fields followed by an asterisk must be filled in.
1. Which element/s of the accounting equation decrease when assets are purchased? *
a) No overall change to any element. b) Assets only. c) Owner's Equity only. d) Assets and owner's equity. e) Assets and liabilities.
2. When a business purchases equipment and pays for it immediately, we debit the __________ account. *
a) Bank/Cash b) Equipment c) Capital d) Owner's Equity e) None of the above.
3. When a business purchases equipment and pays for it immediately, we credit the __________ account. *
a) Bank/Cash b) Equipment c) Capital d) Owner's Equity e) None of the above.
First Name
E-Mail Address
Country
CountryUnited StatesCanada----------------AfghanistanAlbaniaAlgeriaAmerican SamoaAndorraAngolaAnguillaAntarcticaAntiguaArgentinaArmeniaArubaAustraliaAustriaAzerbaijanBahamasBahrainBangladeshBarbadosBelarusBelgiumBelizeBeninBermudaBhutanBoliviaBosnia and HerzegovinaBotswanaBouvet IslandBrazilBritish Indian Ocean TerritoryBritish Virgin IslandsBruneiBulgariaBurkina FasoBurundiCambodiaCameroonCape VerdeCayman IslandsCentral African RepublicChadChileChinaChristmas IslandCocos IslandsColombiaComorosCongoCook IslandsCosta RicaCroatiaCubaCyprusCzech RepublicDenmarkDjiboutiDominicaDominican RepublicEast TimorEcuadorEgyptEl SalvadorEquatorial GuineaEritreaEstoniaEthiopiaFalkland IslandsFaroe IslandsFijiFinlandFranceFrench GuianaFrench PolynesiaFrench Southern TerritoriesGabonGambiaGeorgiaGermanyGhanaGibraltarGreeceGreenlandGrenadaGrenadaGuamGuatemalaGuineaGuinea-BissauGuyanaHaitiHeard and McDonald IslandsHondurasHong KongHungaryIcelandIndiaIndonesiaIranIraqIrelandIsraelItalyIvory CoastJamaicaJapanJordanKazakhstanKenyaKiribadiNorth KoreaSouth KoreaKuwaitKyrgyzstanLaosLatviaLebanonLesothoLiberiaLibyaLiechtensteinLithuaniaLuxembourgMacaoMacedoniaMadagascarMalawiMalaysiaMaldivesMaliMaltaMarshall IslandsMartiniqueMauritaniaMauritiusMayotteMexicoFederated States of MicronesiaMoldovaMonacoMongoliaMontserratMoroccoMontenegroMozambiqueMyanmarNamibiaNauruNepalNetherlandsNetherlands AntillesNew CaledoniaNew ZealandNicaraguaNigerNigeriaNiueNorfolk IslandNorthern Mariana IslandsNorwayOmanPakistanPalauPanamaPapua New GuineaParaguayPeruPhilippinesPitcairn IslandPolandPortugalPuerto RicoQatarReunionRomaniaRussiaRwandaS. Georgia and S. Sandwich Isls.Saint Kitts and NevisSaint LuciaSaint Vincent and the GrenadinesSamoaSan MarinoSao Tome and PrincipeSaudi ArabiaSenegalSerbiaSeychellesSierra LeoneSingaporeSlovakiaSloveniaSolomon IslandsSomaliaSouth AfricaSpainSri LankaSt. HelenaSt. Pierre and MiquelonSudanSurinameSvalbardSwazilandSwedenSwitzerlandSyriaTaiwanTajikistanTanzaniaThailandTogoTokelauTongaTrinidad and TobagoTunisiaTurkeyTurkmenistanTurks and Caicos IslandsTuvaluU.S. Minor Outlying IslandsUgandaUkraineUnited Arab EmiratesUnited KingdomUruguayUzbekistanVanuatuVatican CityVenezuelaVietnamUS Virgin IslandsWallis and Futuna IslandsWestern SaharaYemenYugoslavia (former)ZaireZambiaZimbabwe
	Subscribe to Newsletter
Please enter the word that you see below.

Okay, so that's it for our lesson on the journal entry for purchasing an asset!

We hope this kind of transaction is a lot easier now.

If you feel good about this journal entry, feel free to move on to the next lesson, where we'll cover the journal entry for the owner's drawings from a business.

If you don't feel so good about debits and credits generally, check out our lesson Debits and Credits: What They Really Mean. This lesson should give you a much better understanding of debits and credits and make it much easier to figure out the journal entry for any transaction.

Return from Journal Entry for Asset Purchase to Double Entry Accounting 

Return to the Home Page 

Stay up to date with ABfS!
Follow us on Facebook:

---

Previous lesson: Bank Loan Journal Entry 
Next lesson: Journal Entry for Drawings

---

---

---

© Copyright 2009-2023 Michael Celender. All Rights Reserved. 
Click here for Privacy Policy.

Search this site:

Stay up to date with ABfS!
Follow us on Facebook:

All the lessons on this site and much, much more...

Available Now On