Assets = Liabilities + Owners Equity

USING ACCOUNTING FOUNDATION CLASSES

EQUATION
ACCOUNTING EQUATION
Assets = Liabilities + Owners’ equity
Stockholders’ Equity = Contributed Capital + Retained Earnings
Retained Earnings = Prior Retained Earnings + Net Income – Dividends
Net Income = Revenues – Expenses
Assets = Liabilities + Contributed Capital + Prior Retained Earnings + Revenues –
Expenses – Dividends
Or
Assets + Expenses = Liabilities + Contributed Capital + Retained Earnings + Revenues

Debit (Left Side) Credit (Right Side)

ILLUSTRATION
a) A firm starts its business and owner brings in INR 2 million by transferring money
from its bank account and gets the shares of the company.
b) Land is purchased for INR 1 million.
c) Salaries paid to employees INR 0.2 million
d) Rent paid for rented premises INR 0.35 million
e) Firm recruited two employees with a salary of INR 50,000 per month each.
f) Revenue received for services provided INR 0.9 million
g) Money spent on advertising, INR 0.15 million
h) Took loan from bank, INR 1.25 million
 ASSET
a) A firm starts its business and owner brings in INR 2 million
by transferring money from its bank account and gets the shares
of the company.
CAPITAL
Assets = Liabilities + Owners Equity
Bank Account +2000000 Capital +2000000

No. Date Accounts Debits Credits

(a) Dr. Bank 2,000,000

Cr. Capital 2,000,000

Bank Capital
Dr. Cr. Dr. Cr.

(a) 2,000,000   2,000,000 (a)

   
ASSET (LAND) b) Land is purchased for INR 1 million.

ASSET (BANK A/C)

Assets = Liabilities + Owners Equity
Bank Account Capital 2000000
2000000 -1000000
Land Account +1000000
2000000 2000000

No. Date Accounts Debits Credits

(b) Dr. Land 1,000,000

Cr. Bank 1,000,000

Land
Dr. Cr. Bank
Dr. Cr.
(b) 1,000,000 (a) 2,000,000  1,000,000 (b)
   
ASSET (BANK) c) Salaries paid to employees INR 0.2 million

CAPITAL (EXPENSE )
Assets = Liabilities + Owners Equity
Bank Account Capital
1000000-200,000 2000000-200,000
Land Account 1000000
1800000 1800000

No. Date Accounts Debits Credits

(c) Dr. Salary 200,000
Cr. Bank 200,000

Salary Bank
Dr. Cr. Dr. Cr.
(c) 200,000 (a) 2,000,000  1,000,000 (b)
    200,000 (c)
ASSET (BANK) d) Rent paid for rented premises INR 0.35 million

CAPITAL (EXPENSE )
Assets = Liabilities + Owners Equity
Bank Account Capital
800,000-350,000 1800000-350,000
Land Account 1000000
1450000 1450000

No. Date Accounts Debits Credits

(d) Dr. Rent Expense 350,000
Cr. Bank 350,000
Bank
Rent Expense Dr. Cr.
Dr. Cr. (a) 2,000,000  1,000,000 (b)
200,000 (c)
(d) 350,000 350,000 (d)
   
ASSET e) Firm recruited two employees with a salary of INR 50,000
per month each.

CAPITAL
No entry for employment contracts. Work must be performed, or cash paid before
entry is recorded.
ASSET (BANK) f) Revenue received for services provided INR 0.9 million
CAPITAL (REVENUE )
Assets = Liabilities + Owners Equity
Bank Account Capital
450,000+900,000 1450,000+900,000
Land Account 1,000,000
2,350,000 2,350,000

No. Date Accounts Debits Credits

(f) Dr. Bank 900,000

Cr. Revenue from Operations 900,000

Bank
Revenue from Operations
Dr. Cr.
Dr. Cr. (a) 2,000,000  1,000,000 (b)
900,000 (f) (f) 900,000 200,000 (c)
350,000 (d)
   
 ASSET (BANK) g) Money spent on advertising, INR 0.15 million
CAPITAL (EXPENSE )
Assets = Liabilities + Owners Equity
Bank Account Capital
1,350,000-150,000 2,350,000-150,000
Land Account 1000000
2,200,000 2,200,000

No. Date Accounts Debits Credits

(g) Dr. Advertising Expense 150,000
Bank
Cr. Bank 150,000 Dr. Cr.
(a) 2,000,000  1,000,000 (b)
Advertising Expense (f) 900,000 200,000 (c)
350,000 (d)
Dr. Cr.
150,000 (f)
(d) 150,000
   
 ASSET (BANK) h) Took loan from bank, INR 1.25 million
LIABILITY (LOAN )
Assets = Liabilities + Owners Equity
Bank Account Loan Capital
1,200,000 +1,250,000 +1,250,000 2,200,000
Land Account 1,000,000
3,450,000 1,250,000 2,200,000

No. Date Accounts Debits Credits

(h) Dr. Bank 1,250,000
Bank
Cr. Loan 1,250,000 Dr. Cr.
(a) 2,000,000  1,000,000 (b)
Loan (f) 900,000 200,000 (c)
Dr. Cr. (h) 1,250,000 350,000 (d)
150,000 (f)
1,250,000 (h)
   
 UNADJUSTED TRIAL
BALANCEType of Trial Balance
Account Debit Credit
A Bank 2,450,000 -
Balance
A Land 1,000,000 -
Sheet
E Salary 200,000 -
E Rent Expense 350,000 -

Profit E Advertising Expense 150,000 -

and Loss R Revenue from Operations   900,000
Account L Loan 1,250,000
C Capital or Common Stock   2,000,000
Total 4,150,000 4,150,000
Trial Balance
FINANCIAL STATEMENTS
Income Statement
Revenues 900,000
Less: Expenses
Salary 200,000
Rent Expense 350,000
Advertising Expense 150,000
Net Income or Profit (Revenues-Expenses) 200,000
FINANCIAL STATEMENTS
BALANCE SHEET
Assets
Bank 2,450,000
Land 1,000,000
Total 3,450,000
Liabilities and Equity
Capital or Common Stock 2,000,000 
+ Net Profit 200,000 2,250,000
Loan 1,250,000
Total 3,450,000