The Accounting Equation

Examples:

Capital = 5000

Liabilities = 4800

Assets = ?

Assets = Capital + Liabilities

? = 5000 + 4800

A = 9800

The equation A = C + L can be manipulated to find any of the missing variables.

Example (Finding Capital)

Assets = 10800

Liabilities = 6000

Capital = ?

A = C+ L

10800 = C + 6000

C = 10800 – 6000

C = 4800

Note: Capital = Assets - Liabilities

Example (Finding Liabilities)

Assets = 45000

Capital = 22100

Liabilities = ?

A=C+L
45000 = 22100 + L

L = 45000 – 22100

L = 22900

Note: Liabilities = Assets – Capital

Remember:

1. A = C + L
2. C = A – L
3. L = A – C

Double Entry

Transactions Account to be Account to be

  Debited Credited
Bought office machinery on credit from office Ltd Off. Machinery Off. Ltd
Sold stationery for cash Cash Stationery
The owner introduces further capital in cash Cash Capital
A debtor, N. Lee paid in cash Cash N. Lee
Paid a creditor, A. Barnes by cheque A. Barnes Bank
Received a loan from P. Norman in cash Cash P. Norman
Returned office machinery to Office Ltd Off Ltd Off. Machinery
A debtor, L. Nixon pays by cheque Bank L. Nixon
Bought motor van paying by cash Motor van Cash
Sold fixtures on credit to J. Jakes J. Jakes fixtures

J. Jakes returned some of the office fixtures bought Fixtures J. Jakes

Cash paid into bank
Paid a creditor, H Gray, by cheque H. Gray Bank
The proprietor paid a creditor, J. Smith, from private
funds outside the firm. J smith Capital

The Asset of Stock

Transactions Account to be Account to be

  Debited Credited
Bought goods paying by cheque  Purchases  Bank
Sold goods for cash  Cash  Sales
Bought goods on credit from H. Simms  Purchases  H. Simms
Sold goods on credit to C. Lane B. Lane  Sales
Fixtures bought on credit from Apex Ltd  Fixtures  Apex
Goods returned by C. Lane  Returns Inwards C. Lane
A debtor, L. Cox, paid his balance in cash  Cash  L. Cox
Sold machinery on credit to P. Wilson  P. Wilson  Machinery
 Returns
Goods returned to H. Simms  H. Simms Outwards
Bought goods for cash  Purchases  Cash
Fixtures returned to Apex Ltd  Apex  Fixtures
Paid a creditor, R. Taylor, by cheque  R. Taylor  Bank
Machinery returned by P. Wilson  Machinery  P. Wilson
Cash purchases  Purchases  Cash
Cash sales  Cash  Sales

Double Entry for Expenses & Revenue

Transactions Account to Account to

  be Debited be Credited
Paid rent in cash  Rent  Cash
Paid salaries by cheque  Salaries  Bank
Rent received in cash  cash  Rent received
Paid rates by cheque  Rates  Bank
Commission received in cash  Cash  Com. Received
Received by cheque, a refund of rates paid  Bank  Rates
Paid insurance by cheque  Insurance  Bank
Insurance paid in cash  Insurance  Cash
Sold old furniture, receiving proceeds in cash  Cash  Furniture
Paid wages by cheque  Wages  Bank
Sublet premises, receiving rent by cheque  Bank  Rent Received
Cash drawings by proprietor  Drawings  Cash
interest received in error refunded by cheque  Interest Received  Bank
Electricity paid by cheque  Electricity  Bank
Electricity rebate received in cash  Cash  Electricity
Motor van bought by cheque  Motor Van  Bank
Motor expenses paid in cash  Motor expenses  Cash
General expenses paid in cash  General expenses  Cash
Received a refund of insurance by cheque  Bank  Insurance
Proprietor takes stock for personal use  Drawings  Purchases