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Double Entry System. DR. CR. Accounting Equation. 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. Items of value owned by the business. A ssets = O wner’s E quity + L iabilities. Building - PowerPoint PPT Presentation
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Double EntryDouble Entry
SystemSystem
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!
A A = = OE OE ++ LL
TRANSACTION THAT AFFECTS BOTH TRANSACTION THAT AFFECTS BOTH
ASSET AND LIABILITY ASSET AND LIABILITY
AASSETSSET LLIABILITY IABILITY
AASSETSSET LLIABILITYIABILITY
TRANSACTION THAT AFFECTS BOTH TRANSACTION THAT AFFECTS BOTH
ASSET AND OWNER’S EQUITY ASSET AND OWNER’S EQUITY
AASSETSSET OOWNER’S WNER’S EEQUITY QUITY
AASSETSSET OOWNER’S WNER’S EEQUITYQUITY
AASSETSSET AASSET SSET
LLIABILITYIABILITY LLIABILITYIABILITY
AA = = OE OE ++ LL
TRANSACTION THAT AFFECTS TRANSACTION THAT AFFECTS
ASSETS ONLY ASSETS ONLY
TRANSACTION THAT AFFECTS TRANSACTION THAT AFFECTS
LIABILITIES ONLYLIABILITIES ONLY
Examples :Examples :a) a) John began business with cash in John began business with cash in
hand hand $5000.$5000.
CashCash $5000$5000 Capital $5000$5000
b)b) The firm took a bank loan of The firm took a bank loan of
$8000.$8000.
CashCash $8000$8000 Bank Loan $8000$8000
Motor VehicleMotor Vehicle $2000$2000 CashCash $2000$2000
AA = = OE OE ++ LL
c)c) Being purchase of motor vehicle Being purchase of motor vehicle
from from ABC Trading for $2000. ABC Trading for $2000.
Examples :Examples : AA = = OE OE ++ LL
e) Being receipt of $3500 in cheque from e) Being receipt of $3500 in cheque from
a debtor.a debtor.
DebtorsDebtors $3500$3500 Cash at Cash at Bank $3500$3500
d) Being payment of $500 to Creditor, d) Being payment of $500 to Creditor,
Peter.Peter.
CashCash $500$500 Creditors $500$500
Examples :Examples : AA = = OE OE ++ LL
f) Being repayment of bank loan for f) Being repayment of bank loan for
$1500. $1500. CashCash $1500$1500 Bank Loan $1500$1500
g) Being purchase of office equipment g) Being purchase of office equipment
from from Lee Trading on credit for $780.Lee Trading on credit for $780. Office EquipmentOffice Equipment $780$780 CreditorsCreditors$780$780
(Lee Trading)
AssetsAssets = =
Owner’s Equity Owner’s Equity ++
LiabilitiesLiabilities
ACCOUNTING ACCOUNTING EQUATIONEQUATION
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!
BALANCE SHEET AS AT 1 BALANCE SHEET AS AT 1 Jan 2000 Jan 2000
Owner’s EquityOwner’s Equity $ $
Capital Capital Add: ProfitsAdd: ProfitsLess: Drawings Less: Drawings
Long Term LiabilitiesLong Term LiabilitiesLoan from bank Loan from bank
Current LiabilitiesCurrent LiabilitiesCreditors Creditors Other creditorsOther creditors
Fixed AssetsFixed Assets $ $$ $
BuildingBuilding Office Equipment Office Equipment Motor Vehicle Motor Vehicle FixturesFixtures
Current AssetsCurrent Assets
Stock (*closing) Stock (*closing) Debtors Debtors BankBank Cash Cash
Assets =Assets = Owner’s Equity + Owner’s Equity +
LiabilitiesLiabilities
Same figure
a) Owner brought in cash $2000 as additional capital
+ + 20002000
A = OE + LA = OE + L BALANCE SHEET AS AT 1 Jan 2000 BALANCE SHEET AS AT 1 Jan 2000
Owner’s EquityOwner’s Equity $ $
Capital 38000Capital 38000
Long Term LiabilitiesLong Term LiabilitiesLoan from bank 3000Loan from bank 3000
Current LiabilitiesCurrent LiabilitiesCreditors 6650Creditors 6650
Fixed AssetsFixed Assets $ $$ $
Motor Vehicle 25000Motor Vehicle 25000 Fixtures Fixtures 1005010050 35050 35050 Current AssetsCurrent Assets
Stock 4570Stock 4570 Debtors 7400Debtors 7400 Cash Cash 630 630
1260012600
4765047650 4765047650
Example 2 :Example 2 :
+ + 20002000
BALANCE SHEET AS AT 1 Jan 2000 BALANCE SHEET AS AT 1 Jan 2000
Owner’s EquityOwner’s Equity $ $
Capital 38000Capital 38000
Long Term LiabilitiesLong Term LiabilitiesLoan from bank 3000Loan from bank 3000
Current LiabilitiesCurrent LiabilitiesCreditors 6650Creditors 6650
Fixed AssetsFixed Assets $ $$ $
Motor Vehicle 25000Motor Vehicle 25000 Fixtures Fixtures 1005010050 35050 35050 Current AssetsCurrent Assets
Stock 4570Stock 4570 Debtors 7400Debtors 7400 Cash Cash 630 630
1260012600
4765047650 4765047650
Example 2 :Example 2 :
+ + 20002000
+ + 20002000
b) Owner paid off the loan $1000
- - 10001000
- - 10001000
c) Owner paid creditors $1100
- - 11001100 - - 11001100
BALANCE SHEET AS AT 1 Jan 2000 BALANCE SHEET AS AT 1 Jan 2000
Owner’s EquityOwner’s Equity $ $
Capital 38000Capital 38000
Long Term LiabilitiesLong Term LiabilitiesLoan from bank 3000Loan from bank 3000
Current LiabilitiesCurrent LiabilitiesCreditors 6650Creditors 6650
Fixed AssetsFixed Assets $ $$ $
Motor Vehicle 25000Motor Vehicle 25000 Fixtures Fixtures 1005010050 35050 35050 Current AssetsCurrent Assets
Stock 4570Stock 4570 Debtors 7400Debtors 7400 Cash Cash 630 630
1260012600
4765047650 4765047650
Example 2 :Example 2 :
+ + 20002000
+ + 20002000
- - 10001000
- - 10001000
BALANCE SHEET BALANCE SHEET
AS AT 31 Dec 2000AS AT 31 Dec 2000
Owner’s EquityOwner’s Equity $ $ $$
Capital Capital 4000040000
Long Term LiabilitiesLong Term LiabilitiesLoan from bank Loan from bank 20002000
Current LiabilitiesCurrent LiabilitiesCreditors Creditors 55505550
Fixed AssetsFixed Assets $ $$ $
Motor Vehicle 25000Motor Vehicle 25000 Fixtures Fixtures 1005010050 35050 35050 Current AssetsCurrent Assets
Stock 4570Stock 4570 Debtors 7400Debtors 7400 Cash Cash 530 530
1250012500
4755047550 4755475500
IN CLOSING…