Many transactions change the accounting equation without any cash moving. A purchase on credit, a sale on credit and an unpaid bill each have a dual effect. You find the two effects by asking what the business gained or owes, not by asking whether money moved.
This lesson follows separating business transactions from personal spending and belongs to accounting model and transactions.
What changes when no cash moves?
The bank balance stays the same, but other items still change. The business may gain an asset it has not paid for, which creates a payable.
It may give up inventory and gain a receivable, which can also create profit. It may incur a cost that it has not yet paid.
Think of a restaurant that takes a delivery of vegetables and pays at the month end. The kitchen has the vegetables today, and the restaurant owes the supplier today, even though the till has not changed.
How do you work through a no-cash transaction?
- Ask what the business received or gave up. Goods, a service or a right to be paid all count.
- Ask who is owed, or who owes. A supplier owed money is a payable. A customer who owes money is a receivable.
- Check profit or cost. A sale above cost adds profit to capital. An expense reduces capital.
- Update the table and confirm both sides are equal.
Worked example
Zul’s Printing Shop starts with bank RM12,000, equipment RM8,000 and inventory (paper) RM3,000. Capital is RM23,000. All amounts are in RM.
- Zul buys paper for RM1,500 on credit from a supplier.
- He sells paper that cost RM600 for RM900 to a customer on credit.
- He receives the electricity bill for RM250 and has not yet paid it.
| After | Bank | Equipment | Inventory | Receivables | Assets total | Payables | Capital | Liabilities + Capital |
|---|---|---|---|---|---|---|---|---|
| Start | 12,000 | 8,000 | 3,000 | 0 | 23,000 | 0 | 23,000 | 23,000 |
| 1 | 12,000 | 8,000 | 4,500 | 0 | 24,500 | 1,500 | 23,000 | 24,500 |
| 2 | 12,000 | 8,000 | 3,900 | 900 | 24,800 | 1,500 | 23,300 | 24,800 |
| 3 | 12,000 | 8,000 | 3,900 | 900 | 24,800 | 1,750 | 23,050 | 24,800 |
Transaction 1: inventory up 1,500 and payables up 1,500.
Transaction 2: receivables up 900 (the selling price) and inventory down 600 (the cost). Profit is 900 − 600 = 300, so capital rises by 300.
Transaction 3: payables up 250 and capital down 250, because the electricity cost belongs to this period.
Notice the bank stays at 12,000 from start to finish. The equation still balances at every step.
The mistake to watch for
The most tempting slip is to record a credit sale at the selling price and forget that inventory has left the business.
Mistaken working for transaction 2: receivables up 900 and capital up 900. Inventory is left at 4,500.
Assets become 25,400 and capital plus liabilities becomes 23,900 + 1,500 = 25,400. It balances, but profit is overstated by RM600.
The correction is to ask “what did the business give up?”. It gave up paper that cost 600. So inventory falls by 600, and the gain to capital is only the difference of 300.
Check yourself
1. A business buys furniture for RM2,000 on credit from a supplier. State both effects.
Show answer
Furniture (asset) up 2,000 and payables (liability) up 2,000. Capital and bank are unchanged.
2. It sells goods that cost RM400 for RM650 on credit. State the effects.
Show answer
Receivables up 650, inventory down 400, capital up 250 (650 − 400 = 250).
3. A water bill of RM80 arrives and is not paid. State the effects.
Show answer
Payables up 80 and capital down 80. The bank balance does not change until the bill is paid.
Where this leads next
Now combine every skill to roll a whole period forward in reconciling a closing position from opening data. The double-entry and ledger trainer lets you check your own credit examples, and the module practice set mixes all lessons.
Some students handle cash transactions well but freeze when the word “credit” appears. A one-to-one Accounting teacher can drill credit sales and unpaid bills with you in online one-to-one Accounting tuition.