The Four Types of Balance Sheet Change
Every transaction changes the balance sheet in one of four ways. Recognising the four helps you find the journal entry faster.
Updated
The four cases
A transaction always changes at least two items. Either both are on the same side (the total stays the same) or one is on each side (the total rises or falls). The examples leave out VAT.
| Case | What happens | Balance sheet total | Example | Entry |
|---|---|---|---|---|
| Asset exchange | One asset up, another down | unchanged | Machine bought from the bank account | Dr Machinery, Cr Bank |
| Liability exchange | One liability up, another down | unchanged | Supplier debt turned into a loan | Dr Payables, Cr Loan |
| Increase on both sides | An asset and a liability both rise | rises | Bank loan paid out | Dr Bank, Cr Loan |
| Decrease on both sides | An asset and a liability both fall | falls | Supplier invoice paid by bank | Dr Payables, Cr Bank |
Check yourself
A customer settles a receivable of £3,000 by bank transfer.
A loan of £20,000 is repaid from the bank account.
A short-term supplier debt of £12,000 is turned into a long-term loan.
More on accounting
Typical exam mistakes
- Calling a customer payment an increase: bank rises but receivables fall, both assets, so it is an asset exchange.
- Seeing only the bank when a loan is repaid: the loan falls too and the balance sheet gets shorter.
Your turn
Three transactions from the journal entry trainer: choose the accounts, enter the amounts and check.
Transaction
We pay £4,300.00 from the till into the bank account.
Debit
Assets up · expenses · liabilities down
Total debit£0.00
Credit
Liabilities up · income · assets down
Total credit£0.00
Frequently asked questions
Can a transaction unbalance the balance sheet?+
No. Each transaction changes both sides by the same amount or swaps within one side, so the balance sheet always balances.