Chapter 4

.1 Separate Entity concept: the owner of the business should be considered a separate individual from its business.1. and Liabilities • 1. Capital. Asset.

The Accounting Equation • Assets = Liabilities + Capital .2.

• 3.3. . • Stock or inventory is an asset but only until it is sold or consumed. expense. Manufacturing businesses buy raw materials.1 Stock(inventory): an important item of expense for most business is the cost of purchased goods or materials. turn into finished goods and sell to customers. income.2 Profit from trading: When a business makes profit it becomes part of Capital. and profit • 3. • It is an expense when it is sold or consumed and is no longer an asset because the business no longer has it. Retail businesses buy goods for resale. so it is added to the Capital.

debit and crecit sides.4. The Dual Aspect of every transaction • Every transaction effect both sides. .

5.1 Accounts and the Nominal Ledger (General Ledger) a business keeps records of each asset item and liability. expense and income and owner’s capital . Nature and Function of Double Entry • 5.