Accounting 101 (ACC101)

Chapters 2
Transaction Analysis &
Integrated Financial Reporting

Prepared by
Dr Msizi Mkhize ©
 Introduction
In mathematics:
Numerical numbers 1, 2, 3, 4, 5 ...
+ - X ÷ four basic operations

Variables i.e. A B C x y

x  5  10 Mathematical equation

Do we talk about these in accounting? Yes

Balance Sheet (Traditional)
O
A
L
A E+L
LHS = RHS
Therefore, today we are going to talk about Basic Accounting Equation
A=O+L ©
Prepared by Dr Msizi Mkhize
 BASIC ACCOUNTING EQUATION (BAE) RULES

A=O+L
Remember: If you transpose a variable to the
Rule right or left hand side then sign changes

A O L
+ - - + - +

i.e. Income and Expense accounts

A positive on the left hand side. O positive on the right hand side. L positive on the right hand side.
If you transpose to the right hand If you transpose to the left hand If you transpose to the left hand
side then sign changes to negative side then sign changes to negative side then sign changes to negative

©
Prepared by Dr Msizi Mkhize
Basic Accounting Equation (BAE)

A=O+L

or O=A-L

or L=A-O

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Prepared by Dr Msizi Mkhize
THE DOUBLE ENTRY SYSTEM
Luca Pacioli Father and Founder

+ Msizi -

2 000 5 000

+ Nethi -

5 000 2 000

©
Prepared by Dr Msizi Mkhize
 Bank balance
 If bank has a favourable/positive/ debit balance then regard
bank as an ASSET
 If bank has an unfavourable/overdraft/negative/credit

balance then regard bank as a LIABILITY

Transaction
Business activity or event

Account
Place where business transactions are methodically recorded

Ledger
Collection of accounts
©
Prepared by Dr Msizi Mkhize
 BOOK EXAMPLE
Pages 28 -49
Introduction to Accounting
5th Edition (Revised)
Worksheet:
Transaction analysis and
Integrated Financial Reporting ©
 ©
Transaction: Judy’s Business

1. Deposited R8 000 of her own money into a bank account in the business’s name
A OE
Bank Capital
8 000 8 000
+ - - +

1. Borrowed R2 000 from her sister

A L
Bank Loan
2 000 2 000
- +
+ -

Prepared by Dr Msizi Mkhize

 ©
Transaction
1. Purchased a cellphone and paid R1 200

A A
Bank Cellphone (Equipment)
1 200 1 200
+ -
+ -

1. Purchased a trestle table and chair and paid R950.

A A
Bank Trestle table & chair/Furniture
950 950
+ -
+ -

Prepared by Dr Msizi Mkhize

 ©
Transaction
𝑅 3 600
1. Purchased 30 briefcases for R3 600. ∴ 𝐶𝑜𝑠𝑡𝑝𝑒𝑟 𝑏𝑟𝑖𝑒𝑓𝑐𝑎𝑠𝑒=
30
=𝑅 120

A A
Bank Inventory
3 600 3 600
+ -
+ -

4. Purchased 20 small black handbags with single pocket – still owe the wholesaler
for R600 for the bags.∴ 𝐶𝑜𝑠𝑡𝑝𝑒𝑟 h𝑎𝑛𝑑𝑏𝑎𝑔= 𝑅 600 = 𝑅 30
20
L
Trade payables Inventory
600 600
- +
+ -

Prepared by Dr Msizi Mkhize

 Transaction ©
5. Sold 2 briefcases for R600. CoS = 2 x R120 = R240

Sold 1 handbag for R60. CoS = 1 x R30 = R30

Bank A Sales OE
660 660
+ - - +

Inventory A Cost of Sales OE

270 270
+ - +

Prepared by Dr Msizi Mkhize

 Transaction CoS = 4 x R120 + 3 x R30 = R570 ©
6. Sold 4 briefcases and 3 handbags- must still be paid R1 380 .
Trade receivables A Sales OE
1 380 1 380
+ - - +

Inventory A Cost of Sales OE

570 570
+ - - +

7. Judy withdrew R300 for personal use

A OE
Bank Drawings
300 300
- +
+ -

Prepared by Dr Msizi Mkhize

 Assessment Questions
Please do these questions on your own

2.1(B)
2.2(C)
2.3(A)