Choosing accounts for transactions

Once you understand double-entry, the next skill is coding: deciding which account each part of a transaction belongs in. When you create an invoice or bill, Spend Money, or a manual journal, you’re asked to pick an account for every line. This guide gives you a repeatable way to choose correctly, even if you’ve never done bookkeeping before.

Start with the chart of accounts

Every account in your books has a type, and that type is the key to everything. AccountFUN groups them into five sections (see the Chart of accounts guide for the full list):

Section	Examples	Natural side
Assets	Cash, inventory, equipment, money owed to you	Debit
Liabilities	Unpaid bills, loans, tax you owe	Credit
Equity	Owner’s investment, retained earnings	Credit
Revenue	Sales, service income, interest earned	Credit
Expenses	Rent, supplies, wages, utilities	Debit

The “natural side” just means the direction in which that account normally grows. Remember: Assets and Expenses are debit-natural; Liabilities, Equity, and Revenue are credit-natural. When in doubt, this single rule resolves most questions.

The two questions to ask

For any transaction, answer these in order:

What actually happened? Describe it in plain English, including what came in and what went out (or what was promised either way).
Which accounts gained and lost? Map each effect to an account type.

The plain-English description is the most important step. Most miscoding comes from skipping straight to “which dropdown?” without first naming the reality.

A decision tree

Did cash (or a bank balance) move?
│
├─ YES, money came IN  →  Cash/Bank is DEBITED.
│      What did you get it for?
│        ├─ Sold something              → Revenue (credit)
│        ├─ Customer paid a debt        → Accounts Receivable (credit)
│        ├─ Took out a loan             → Loan/Liability (credit)
│        └─ Owner put in money          → Equity (credit)
│
├─ YES, money went OUT →  Cash/Bank is CREDITED.
│      What did it buy or settle?
│        ├─ Bought a consumable/service → Expense (debit)
│        ├─ Bought a lasting asset      → Asset, e.g. Equipment (debit)
│        ├─ Paid a supplier you owed    → Accounts Payable (debit)
│        └─ Repaid a loan               → Loan/Liability (debit)
│
└─ NO cash moved (yet)  →  it's "on credit" or a non-cash event.
       ├─ Received a bill you'll pay later
       │      → Expense (debit)  +  Accounts Payable (credit)
       ├─ Raised an invoice you'll collect later
       │      → Accounts Receivable (debit)  +  Revenue (credit)
       ├─ Used up a prepayment / accrual
       │      → Expense (debit)  +  Prepaid Asset (credit)
       └─ Owner took goods / adjustments
              → Equity/Drawings  +  the affected asset/expense

That tree covers the overwhelming majority of real transactions. If you can place your event on it, you’ve chosen the right accounts.

AccountFUN’s default chart, by number range

Your org starts with a default chart organized in loose number ranges. Knowing the ranges helps you find the right account fast when a dropdown is long:

Range	Section	What lives here
000–099	Bank & cash	Business bank accounts, savings
200–299	Revenue	Sales, service income, other income
300–399	Direct costs	Cost of goods sold
400–499	Expenses	Operating costs — rent, wages, utilities, advertising
600–799	Assets	Receivables, inventory, equipment, vehicles
800–899	Liabilities	Payables, tax payable, FX accounts
900+	Equity + long-term liabilities	Owner’s equity, retained earnings, loans, mortgage

So when you’re coding an everyday expense, you’re usually picking from the 400s. When you record a sale, it’s the 200s. Money moving between your own accounts stays in the 000s.

A cheat-sheet of common transactions

Real-world mapping, with the account types and the typical default-account name. (Your exact names may differ slightly — rename accounts freely under Chart of Accounts.)

Transaction	Debit (Dr)	Credit (Cr)
Sell a product/service (paid now)	Bank	Sales Revenue
Sell on terms (invoice, paid later)	Accounts Receivable	Sales Revenue
Customer pays an invoice	Bank	Accounts Receivable
Buy office supplies (paid now)	Office Supplies (expense)	Bank
Receive a supplier bill (pay later)	Expense (e.g. Utilities)	Accounts Payable
Pay a supplier bill	Accounts Payable	Bank
Pay rent	Rent (expense)	Bank
Pay wages	Salaries & Wages (expense)	Bank
Buy a laptop to keep (> ~$500–1,000)	Computer Equipment (asset)	Bank or Loan
Buy a cheap item (< threshold, e.g. a stapler)	Office Supplies (expense)	Bank
Take out a loan	Bank	Loan (liability)
Repay a loan	Loan (liability)	Bank
Owner invests cash	Bank	Owner’s Equity
Owner takes cash out (drawing)	Owner’s Drawings (equity)	Bank
Move money between bank accounts	Destination Bank	Source Bank
Charge sales tax on a sale	(added to the receivable/cash)	Tax Payable
Record input tax on a purchase	Tax Receivable / Tax Payable	(part of the payment)

Asset vs. expense: the one judgment call

The trickiest choice for newcomers is “is this an expense or an asset?” when you buy something. The rule of thumb:

Expense it if it’s consumed quickly or costs below your capitalization threshold — supplies, a coffee, a $40 software subscription, electricity.
Capitalize it as an asset if it’s a lasting, higher-value purchase you’ll use for years — a laptop, a vehicle, machinery. These go to an asset account (like Computer Equipment) and are depreciated over their useful life.

A practical threshold many small businesses use: under ~$500–1,000, expense it; over, capitalize it. Pick a threshold and apply it consistently. AccountFUN doesn’t force a number — you decide based on what’s right for your business and tax rules.

Common mistakes (and how to avoid them)

Coding the bank both ways. The bank line is one side only — cash in is a debit, cash out is a credit. Don’t debit and credit the bank in the same entry unless it’s a transfer between two of your own accounts.
Mixing personal and business. Owner investments and drawings go to an Equity account, not a revenue or expense account. Putting owner cash into Sales Revenue overstates your income.
Treating a loan repayment as an expense. Repaying a loan reduces a liability, not an expense. Only the interest portion is an expense (and your lender statement breaks that out).
Forgetting the “on credit” leg. When you enter a bill, the expense and the payable are both recorded — you don’t also move cash. Cash moves separately when you pay it.
Categorizing transfers as income/expense. Moving money between your own accounts isn’t income or an expense — it’s a Transfer between two asset accounts. (AccountFUN’s Transfer Money does this correctly.)

How AccountFUN keeps you on track

A few built-in guardrails reduce the chance of miscoding:

Account filters on document lines. When you create an invoice, the line accounts are filtered to revenue types; on a bill, to expense/asset types; on Spend Money, every non-bank account is available. The dropdown steers you toward sensible choices.
Default tax rates per account. Each account can carry a default tax rate, auto-applied when you pick the account — one less thing to get wrong.
Bank reconciliation. This is the ultimate safety net. When you clear a bank line as Create (Spend/Receive Money), you’re explicitly choosing the category with the real transaction in front of you. Mis-categorized lines are easy to spot and fix because the bank knows the truth.
Reports. The Profit & Loss and Balance Sheet are literally your accounts grouped by type. If “Office Supplies” looks far too high, you’ll notice — and drill from any total straight to the entries behind it.

The mindset

Coding transactions well is mostly about describing reality accurately, not memorizing rules. Ask “what actually happened, and which bucket does each part belong in?” — and when you’re unsure, follow the cash side first and let the other side follow. Over a few weeks of reconciling, the right accounts become obvious, and your books will tell a clear, true story about your business.