Assets
Resources used by the business that provide a future benefit (i.e. they are not used up immediately) are known as Assets.
Expenses
Resources such as electricity or wages that provide only short-term benefits to the business entail costs that are known as Expenses.
Example 4
Stationery is purchased on credit.
Solution: this one does not involve payment of cash as payment is going to be made at a later date. The amount owing is an increase in the Accounts Payable which is the liability. The Stationery which is an expense (as that only provides short-term benefits to the business) will also increase. This increase in Stationery, the expense, is a reduction in profits and it will finally reduce Owners' equity.
Therefore, Stationery (expense) increases Accounts Payable (liability) increases.
This transaction increased both sides of the equation. (Assets + Expenses = Liability + Owners' Equity + Income)
Example 5
Uniforms are bought on credit.
Solution:
Uniform (expense) increases Accounts Payable (liability) increases.
This transaction increases both sides of the accounting equation.
