CYCLE 7- DAY 1

DOUBLE ENTRY SYSTEM

ASSETS, LIABILITIES AND CAPITAL
(Chapter 6)
ACCOUNTING EQUATION
𝐴𝑠𝑠𝑒𝑡𝑠 = 𝐿𝑖𝑎𝑏𝑖𝑙𝑖𝑡𝑦 + 𝐶𝑎𝑝𝑖𝑡𝑎𝑙
 ▪ Assets are all the resources owned by
the business.

▪ Liabilities are the amounts owed by

the business to other individuals,

Classification businesses or organizations.

▪ Capital is the net value of the business

that represents the owner’s investment
in the business.
 ▪ A transaction is a financial activity.
All businesses operate by buying, selling, spending money,
receiving money as so on. Each of these is a transaction.

▪ Two types of transactions:

What are Cash transactions is a financial activity involving the use of money
such as notes, coins, cheques, debit cards, online payment.
transactions?
Credit transactions is a financial activity where the payment or
receipt occur later.
Involves words like on credit or on time.
 ▪ Each transaction whether cash or credit:
▪ Has two effects (balance sheet)
▪ Has an increase or decrease change
(accounting equation)
Double Entry
Principle
▪ The double entry system the process and
stage of book-keeping showing the double
effect per transaction.
 ▪ Instead of drawing up balance sheet for each
transactions as previously done, this system
applies the use of a set of accounts.
Double Entry
▪ An account is a place where all the
information or particulars are recorded.
 ▪ Each account should be drafted individually.
▪ An account
▪ Has a left hand side known as the DEBIT side.
Account (Often shown in short form as DR)
▪ Has a right hand side known as the CREDIT
side. (Often shown in short form as CR)
▪ Note that an account is form in a T shape, hence it
is referred as a T-account.
 1. Double entry means every transaction affects two
accounts once on the Debit side and once on the
Credit side.
2. Follow IN and OUT principle, where IN is when the
account increases and OUT is when the account
Rules for decreases.
double entry 3. Increase and decrease effects for the first three
classification is as follows:
Application
Practice Work