• Embed Doc
  • Copy Link
  • Readcast
  • Collections
  • CommentGo Back
Download
2
Chapter2: The accounting equation
Contents of chapter
This chapter explains what the accounting equation is, and shows it in the accounting equation.
Notes for teachers

The basic idea underlying all financial accounting is seen to be quite simple, but very logical. This is the use of the accounting equation. If students can understand the simple arithmetical effects of changes in either assets, liabilities or capital, it should make double entry easier for them to learn.

Students should be first taught how to distinguish which items are ASSETS and which are LIABILITIES. It
is crucial that they understand the accounting equation: Assets = Capital + Liabilities.
Students should be reminded that each transaction affects two items and that the two sides of the
equation would always be equal.
There are six ways to change the accounting equation. These are:
Assets
=
Capital
+
Liabilities
(i)
+
+
(ii)
+
+
(iii)
+\u2013
(iv)
\u2013
\u2013
(v)
\u2013
\u2013
(vi)
+
\u2013

It is better to start slowly. Make certain that students understand properly before going on to the next chapter. If a student does not understand these early chapters fully, he/she will get into difficulties later on.

If a student can do the exercises properly, this will give him/her confidence. That is an essential feature in
his/her becoming interested in accounting. So take great care in teaching at this stage.
123456
3
Answers to MCQs and exercises
2.1
C
2.2
B
2.3
C
2.4
A
2.5
C
2.6
(a)$10,700
(b)$23,100
(c)$4,300
(d)$3,150
(e)$25,500
(f)$51,400
2.7X
(a)$38,100
(b)$51,600
(c)$7,600
(d)$104,100
(e)$26,000
(f)$159,000
2.8
(a)Asset
(b)Liability
(c)Asset
(d)Asset
(e)Liability
(f)Asset
2.9X
(a)Asset
(b)Asset
(c)Liability
(d)Asset
(e)Asset
(f)Liability
(g)Asset
(h)Liability
(i)Asset
2.10
Assets side: Loan from S Sun, Creditors; Liabilities side: Stock, Debtors.
2.11

Assets: Motor vehicles $2,000; Premises $5,000; Stock $1,000; Bank $700; Cash $100 = $8,800.
Liabilities: Loan from L Po $3,000; Creditors $400 = $3,400.
Therefore, capital = $8,800 \u2013 $3,400 = $5,400.

2.12X
Assets
= Fixtures $2,000 + Motor vehicles $5,000 + Stock $3,500 + Bank $2,800 + Cash $100

= $13,400
Liabilities = Loan from S Fung $3,000 + Creditors $1,400 = $4,400
Capital = $13,400 \u2013 $4,400 = $9,000

2.13
Assets
Liabilities
Capital
(a)Cash\u2193 $70
Creditors\u2193 $70
(b)Bank\u2193 $200
Fixtures\u2191 $200
(c)Stock\u2191 $275
Creditors\u2191 $275
(d)Cash\u2191 $500
Capital\u2191 $500
(e)Cash\u2191 $200
Loan from K Yiu\u2191 $200
(f)Bank\u2191 $50
Debtors\u2193 $50
(g)Fixtures\u2191 $5,000
Bank\u2193 $5,000
of 00

Leave a Comment

You must be to leave a comment.
Submit
Characters: ...
You must be to leave a comment.
Submit
Characters: ...