Double Entry System DR CR

Accounting Equation

Assets = Owner’s Equity + Liabilities Items of value owned by the business The funds of a business provided by its owners and the profits entitled to him Debts owed by a business to external parties such as suppliers

Assets = Owner’s Equity + Liabilities Building Motor vehicle Office Equipment Fixtures Stock (closing) Cash in hand Cash at bank Capital Profits Creditors Loan from bank Other creditors * Explain these terms to students

Assets = Owner’s Equity + Liabilities Every transaction will affect 2 items. The equation will still balance!

TRANSACTION THAT AFFECTS BOTH ASSET AND OWNER’S EQUITY A = OE + L TRANSACTION THAT AFFECTS BOTH ASSET AND LIABILITY ASSET  LIABILITY  ASSET  LIABILITY  TRANSACTION THAT AFFECTS BOTH ASSET AND OWNER’S EQUITY ASSET  OWNER’S EQUITY  ASSET  OWNER’S EQUITY 

TRANSACTION THAT AFFECTS LIABILITY  LIABILITY  A = OE + L TRANSACTION THAT AFFECTS ASSETS ONLY ASSET  ASSET  TRANSACTION THAT AFFECTS LIABILITIES ONLY LIABILITY  LIABILITY 

Examples : A = OE + L a) John began business with cash in hand $5000. Cash $5000 Capital $5000 The firm took a bank loan of $8000. Cash $8000 Bank Loan $8000 Being purchase of motor vehicle from ABC Trading for $2000. Motor Vehicle $2000 Cash $2000

Examples : A = OE + L d) Being payment of $500 to Creditor, Peter. Cash  $500 Creditors  $500 e) Being receipt of $3500 in cheque from a debtor. Debtors  $3500 Cash at Bank $3500

Examples : A = OE + L f) Being repayment of bank loan for $1500. Cash  $1500 Bank Loan  $1500 g) Being purchase of office equipment from Lee Trading on credit for $780. Office Equipment $780 Creditors$780 (Lee Trading)

Assets = Owner’s Equity + Liabilities ACCOUNTING EQUATION Assets = Owner’s Equity + Liabilities

What is a Balance Sheet? It is a report that is used to present the Accounting Equation that involves a firm’s total assets, total owner’s equity and total liabilities of an accounting period. It is a report that external parties like investors or bankers look at when making important business decisions. How does it look like? Click me!

Assets = Owner’s Equity + Liabilities BALANCE SHEET AS AT 1 Jan 2000 Fixed Assets $ $ Building Office Equipment Motor Vehicle Fixtures Current Assets Stock (*closing) Debtors Bank Cash Owner’s Equity $ Capital Add: Profits Less: Drawings Long Term Liabilities Loan from bank Current Liabilities Creditors Other creditors Same figure

a) Owner brought in cash $2000 as additional capital A = OE + L BALANCE SHEET AS AT 1 Jan 2000 Owner’s Equity $ Capital 38000 Long Term Liabilities Loan from bank 3000 Current Liabilities Creditors 6650 Fixed Assets $ $ Motor Vehicle 25000 Fixtures 10050 35050 Current Assets Stock 4570 Debtors 7400 Cash 630 12600 47650 Example 2 : + 2000 + 2000 a) Owner brought in cash $2000 as additional capital

b) Owner paid off the loan $1000 BALANCE SHEET AS AT 1 Jan 2000 Owner’s Equity $ Capital 38000 Long Term Liabilities Loan from bank 3000 Current Liabilities Creditors 6650 Fixed Assets $ $ Motor Vehicle 25000 Fixtures 10050 35050 Current Assets Stock 4570 Debtors 7400 Cash 630 12600 47650 Example 2 : + 2000 - 1000 - 1000 b) Owner paid off the loan $1000

c) Owner paid creditors $1100 BALANCE SHEET AS AT 1 Jan 2000 Owner’s Equity $ Capital 38000 Long Term Liabilities Loan from bank 3000 Current Liabilities Creditors 6650 Fixed Assets $ $ Motor Vehicle 25000 Fixtures 10050 35050 Current Assets Stock 4570 Debtors 7400 Cash 630 12600 47650 Example 2 : + 2000 - 1000 - 1100 - 1100 c) Owner paid creditors $1100

BALANCE SHEET AS AT 31 Dec 2000 Owner’s Equity $ $ Capital 40000 Long Term Liabilities Loan from bank 2000 Current Liabilities Creditors 5550 Fixed Assets $ $ Motor Vehicle 25000 Fixtures 10050 35050 Current Assets Stock 4570 Debtors 7400 Cash 530 12500 47550

IN CLOSING…