1. CDA COLLEGE ACC101: BOOK KEEPING 1 Lecture 5 Lecture 5 Lecturer: Kleanthis Zisimos

2. Chapter Review In Today’s Lecture we Analyze the accounting equation Analyze the accounting equation Explain what is a T Account Explain what is a T Account

3. The Accounting Equation All the accounting rules, legislations, treatment of transactions and financial statements are based on a simple accounting equation: Assets= Liabilities + Capital Assets= resources owned by the business Assets= resources owned by the business Liabilities=Debts of the business to creditors Liabilities=Debts of the business to creditors Capital.=Debt of the business to Owner Capital.=Debt of the business to Owner

4. The Accounting Equation Example 1. Mark invests 5000 euro in cash to Example 1. Mark invests 5000 euro in cash to create his company called Luna Ltd create his company called Luna Ltd Example 2. Luna ltd buys Furniture 2000 euro from cash. Example 2. Luna ltd buys Furniture 2000 euro from cash. Example 3. Luna Buys Machinery 1000 by credit from Indus Ltd Example 3. Luna Buys Machinery 1000 by credit from Indus Ltd Example 4. Introducing drawings.Mark draws 500 from company Example 4. Introducing drawings.Mark draws 500 from company Drawings are amount of money taken by from the business by its owner Drawings are amount of money taken by from the business by its owner Example 5. Introducing profit. Luna purchases Crystal Glasses for € 300 and sells them € 700 Example 5. Introducing profit. Luna purchases Crystal Glasses for € 300 and sells them € 700 Example 6. Prepare a balance Sheet Example 6. Prepare a balance Sheet

5. The Accounting Equation Assets=Liabilities +Capital Assets=Liabilities +Capital 1. cash (5000)=Capital (5000) 2. Cash (3000)+Furniture (2000)= Capital (5000) 3. Cash (3000) + Furniture (2000) +Machinery (1000)= Capital (5000) +Creditor Indus (1000)

6. The Accounting Equation Assets=Liabilities +Capital Assets=Liabilities +Capital 4. Cash (2500) + Furniture (2000) +Machinery (1000)= Capital (4500) +Creditor Indus (1000) 5. Profit=700-300=400 Cash (2500+400) + Furniture (2000) +Machinery (1000)= Capital (4500+400) +Creditor Indus (1000)

7. The Accounting Equation 6.

8. Transactions & Accounts By now we have learn the basic principles underlying the Balance Sheet and Profit & Loss. By now we have learn the basic principles underlying the Balance Sheet and Profit & Loss. We now turn our attention to the process by which a business transaction works its way through the financial statements. We now turn our attention to the process by which a business transaction works its way through the financial statements. A business transaction is shown in a document. Documents maybe invoices, receipts, credit notes etc. A business transaction is shown in a document. Documents maybe invoices, receipts, credit notes etc. A document or a business transaction is recorded in the books of the company in two Ledger accounts. This is called double entry basis A document or a business transaction is recorded in the books of the company in two Ledger accounts. This is called double entry basis

9. Ledger Accounts Ledger accounts are included in the General ledger which summarizes all assets, liabilities, capital, income and expenditure of the company. Ledger accounts are included in the General ledger which summarizes all assets, liabilities, capital, income and expenditure of the company. The format of a ledger a/c is the following The format of a ledger a/c is the following Name of account Name of account Date Description € Date Description € Date Description € Date Description €

10. Ledger Accounts The left hand site of the account is called The left hand site of the account is called debit site debit site The right hand site of the account is called The right hand site of the account is called credit site credit site Every transaction is recorded twice in the accounts. One in the debit site and one in the credit site. That is why the accounting equation is always equal after each transaction. Every transaction is recorded twice in the accounts. One in the debit site and one in the credit site. That is why the accounting equation is always equal after each transaction.