When you write a cheque, there is a credit to Cash and a debit to one or more accounts. You record these cash payments in the cash disbursements journal. In most cases, you will make the offsetting debit to one of the following three types of accounts:
A liability account.
An asset account.
An expense account.
The entry to a liability account is straightforward. If the cheque pays off a bank loan, shown as the liability, Term Loan, the debit is to that account. If the cheque pays a supplier who has extended credit, shown as Creditors, the debit is to that account. Entries to asset and expense accounts can be more complex. The distinction between assets and expenses is not clear. The following sections discuss both the principle and practical shortcuts in applying it.