Solution 3.5

Solution 3.5

How a debit can represent both an asset and an expense

Assets are like expenses as, to acquire them, involves the outlay of some resource, usually money. Assets, expenses and losses are a cost to the organisation.

Also expenses have the effect of reducing profit and this has the effect of reducing capital. To reduce capital one must debit the account. Thus expenses and assets are represented by debits in double entry accounting.