As you now know, asset and liability accounts go together, as opposite sides of a balanced equation—with owners’ equity, of course. That’s why they make up the balance sheet, which shows the financial position of the company. In a similar way, income and expense accounts go together and make up the income statement, which shows what’s coming in and going out.

It’s really two simple systems that become a little complicated when they’re put together, because the double-entry system sometimes requires entries that may at first seem strange, because of the need to balance. It’s usually easy enough to understand how assets and liabilities are affected by a transaction, but it may be harder with the effect of a transaction on income and expense accounts.

So, we’ll provide a few examples to show it all makes sense, with a little effort.