Double Entry System

DR

CR

Accounting Equation

Assets = Owners Equity + Liabilities

Items of value owned by the business The funds of a business provided by its owners and the profits entitled to him Debts owed by a business to external parties such as suppliers

Assets = Owners Equity + Liabilities

Building Motor vehicle Office Equipment Fixtures Stock (closing) Cash in hand Cash at bank
* Explain these terms to students

Capital Profits

Creditors Loan from bank Other creditors

Assets = Owners Equity + Liabilities

Every transaction will affect 2 items. The equation will still balance!

OE + L

TRANSACTION THAT AFFECTS BOTH ASSET AND LIABILITY

ASSET o ASSET q

LIABILITY o LIABILITY q

TRANSACTION THAT AFFECTS BOTH ASSET AND OWNERS EQUITY

ASSET o ASSET q

OWNERS EQUITY o OWNERS EQUITY q

OE + L

TRANSACTION THAT AFFECTS ASSETS ONLY

ASSET o ASSET q
TRANSACTION THAT AFFECTS LIABILITIES ONLY

LIABILITY o LIABILITY q

Examples :
a)

OE + L

John began business with cash in hand $5000.

Cash

o$5000

Capital

o$5000

b)

The firm took a bank loan of $8000.

Cash

o$8000

Bank Loan

o$8000

c)

Being purchase of motor vehicle from ABC Trading for $2000.

Motor Vehicle o$2000

Cash q$2000

Examples :

OE + L

d) Being payment of $500 to Creditor, Peter.

Cash q $500 Creditors q $500

e) Being receipt of $3500 in cheque from a debtor.

Debtors q $3500 Cash at Bank

o$3500

Examples :

OE + L

f) Being repayment of bank loan for $1500.

Cash q $1500 Bank Loan q $1500

g) Being purchase of office equipment from Lee Trading on credit for $780.
Office Equipment o$780 Creditorso$780
(Lee Trading)

ACCOUNTING EQUATION

Assets Liabilities

Owners Equity +

What is a Balance Sheet?

It is a report that is used to present the Accounting Equation that involves a firms total assets, total owners equity and total liabilities of an accounting period. It is a report that external parties like investors or bankers look at when making important business decisions.
Click me!

How does it look like?

Assets

Owners Equity + Liabilities

BALANCE SHEET AS AT 1 Jan 2000

Fixed Assets $ Building Office Equipment Motor Vehicle Fixtures Current Assets Stock (*closing) Debtors Bank Cash
$

Owners Equity Capital Add: Profits Less: Drawings Long Term Liabilities Loan from bank Current Liabilities Creditors Other creditors

Same figure

Example 2 :

OE + L
Owners Equity Capital
$

BALANCE SHEET AS AT 1 Jan 2000

Fixed Assets $ $ Motor Vehicle 25000 Fixtures 10050 35050 Current Assets Stock 4570 Debtors 7400 Cash 630 12600 47650 38000

Long Term Liabilities Loan from bank 3000 Current Liabilities Creditors 6650

47650

a) Owner brought in cash $2000 as additional capital

Example 2 :

BALANCE SHEET AS AT 1 Jan 2000

Fixed Assets $ $ Motor Vehicle 25000 Fixtures 10050 35050 Current Assets Stock 4570 Debtors 7400 Cash 630 12600 47650 Owners Equity Capital
$

38000

Long Term Liabilities Loan from bank 3000 Current Liabilities Creditors 6650

47650

b) Owner paid off the loan $1000

Example 2 :

BALANCE SHEET AS AT 1 Jan 2000

Fixed Assets $ $ Motor Vehicle 25000 Fixtures 10050 35050 Current Assets Stock 4570 Debtors 7400 - 1100 Cash 630 12600 47650 Owners Equity Capital
$

38000

Long Term Liabilities Loan from bank 3000 Current Liabilities Creditors - 1100 6650

47650

c) Owner paid creditors $1100

BALANCE SHEET AS AT 31 Dec 2000

Fixed Assets $ Motor Vehicle 25000 Fixtures 10050 Current Assets Stock 4570 Debtors 7400 Cash 530 12500 47550 47550
$

Owners Equity Capital

40000

35050

Long Term Liabilities Loan from bank Current Liabilities Creditors

2000 5550

IN CLOSING