Transcript Document

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
Capital
Creditors
Profits
Loan from bank
Other creditors
Fixtures
Stock (closing)
Cash in hand
Cash at bank
* Explain these terms to students
Assets = Owner’s Equity + Liabilities
Every transaction will affect 2 items.
The equation will still balance!
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 
A
=
OE + L
TRANSACTION THAT AFFECTS
ASSETS ONLY
ASSET  ASSET 
TRANSACTION THAT AFFECTS
LIABILITIES ONLY
LIABILITY  LIABILITY 
Examples :
a)
OE + L
$5000
Capital
$5000
The firm took a bank loan of $8000.
Cash
c)
=
John began business with cash in hand
$5000.
Cash
b)
A
$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)
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.
Click
me!
How does it look like?
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
$
Example 2 :
A
=
OE
+
L
BALANCE SHEET AS AT 1 Jan 2000
Fixed Assets $
$
Motor Vehicle 25000
Fixtures
10050
35050
Current Assets
Stock
4570
Debtors
7400
Cash
630
12600
47650
Owner’s Equity
Capital
$
38000
Long Term Liabilities
Loan from bank
3000
Current Liabilities
Creditors
6650
47650
a) Owner brought in cash $2000 as
additional capital
Example 2 :
BALANCE SHEET AS AT 1 Jan 2000
Fixed Assets $
$
Motor Vehicle 25000
Fixtures
10050
35050
Current Assets
Stock
4570
Debtors
7400
Cash
630
12600
Owner’s Equity
Capital
$
38000
Long Term Liabilities
Loan from bank
3000
Current Liabilities
Creditors
47650
b) Owner paid off the loan $1000
6650
47650
Example 2 :
BALANCE SHEET AS AT 1 Jan 2000
Fixed Assets $
$
Motor Vehicle 25000
Fixtures
10050
35050
Current Assets
Stock
4570
Debtors
7400
- 1100
Cash
630
12600
Owner’s Equity
Capital
$
38000
Long Term Liabilities
Loan from bank
3000
Current Liabilities
Creditors
- 1100 6650
47650
c) Owner paid creditors $1100
47650
BALANCE SHEET
AS AT 31 Dec 2000
Fixed Assets $
Motor Vehicle 25000
Fixtures
10050
$
35050
Current Assets
Stock
4570
Debtors
7400
Cash
530
Owner’s Equity
Capital
$
$
40000
Long Term Liabilities
Loan from bank
2000
Current Liabilities
Creditors
5550
12500
47550
47550
IN CLOSING…