The basic methods of Accounting system Double-entry Book-keeping Ledger Accounts

What is the double-entry book-keeping ? The most commonly used system of book-keeping based on the principle that every financial transaction involves the simultaneous receiving and giving of value and therefore recorded twice. Dual aspect-duality convention Debit- is left position Credit- is right position

Book-keeping entries for expenses and revenue Cost item-rent, local business tax, light and heat, wages and salaries, postage, communication, sale and delivery, cost of items bought for resale Revenue item, operational, investment and financial activity Purchases and sales- one at cost price other with selling price

Double entry book-keeping for all items Debit Credit Increases in assets Decreases in Assets Decrease in liabilities Increase in liabilities Decreases in capital Increases in capital Increases in expenses Decrease in expenses Decrease in revenue Increase in revenue

Double entry position Balance Sheet Assets Liabilities Capital Assets Liabilities Capital Debit Credit Debit Credit Debit Credit Debit Credit Debit Credit Debit Credit Increase Decrease Decrease Increase Decrease Increase Income statement Income statement Revenue Expenses Debit Credit Debit Credit Decrease Increase Increase Decrease

Assets =Liabilities+Capital- Drawings+Revenue-Expenses Assets = = Liabilities + Capital Debit / Credit Debit / Credit Debit / Credit Increase/Decrease Decrease/Increase Decreases/Increase Debit - left side Credit – right side ____________________________________________________ Assets + Withdrawals +Expenses=Liabilities + Capital + Revenue +Dr/Cr- +Dr/Cr- +Dr/Cr- -Dr/Cr+ -Dr/Cr+ -Dr/Cr+

Exercise A) Commenced a business by putting 5000 AZN of his own money into a business bank account B) Bought shoes on a credit from ABT ltd for 3000 AZN C) Bought office furniture on credit from B&P ltd for 650 AZN D) Took 600 AZN for cash box from the bank account, E) Paid 300 AZN to B&P in cash F) Bought stationery and kitchen supplies for 150 AZN, paying in cash to KL ltd G) Sold shoes for 2600 AZN costing 2000 AZN to Orne H) Returned some pairs of shoes costing 180 AZN to ABT ltd I) Paid 2000 AZN to ABT from the bank account J) Got Invoice for heat and light costing 20 AZN paid in cash and transport cost is 35 AZN K) Paid 4 % tax from the gross earnings from the B/A and took from cash box 50 AZN for own deals

Solution Bank Capital Shoes Stationery/Kitch a) 5000 d) 500 a)5000 b) 3000 g)2000 f) i) 2000 h)180 i) 2000 h)180 k) 104 k) 104 ABT/Payables Furniture P&B/Payables Cash h)180 b) 3000 c) 650 e)300 c) 650 d) 600 e)300 i)2000 f) 150 j) 35 j) Receivable/Orne Drawings Heat&light expense Payable to Elect e)2600 g) 50 j) 20 j) 20

Sales COGS Tax Expense G) 2600 g) 2000 k) 104 Transport Expense Stationery Expense J)

Profit and Loss Statement Sales Cost of Goods Sold (2000) H&light expense (20) Transport expense (35) Stationery&kitch (150) Tax 4 % (104) Tax 4 % (104) Profit 291 Drawings (50) Earnings 241

Balance sheet Assets AZN Liabilities AZN Furniture 650 Payable/ ABT 820 Shoes 820 Payable/B&P 350 Receivable Payable H&L 20 Bank Cash 65 Capital Capital Profit/earn 241 Profit/earn 241 Total 6431 Total 6 431