03 Accounting Equation and Analysis of Transactions 6ed.pptx

03 Accounting Equation and Analysis of Transactions...

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Chapter 3: THE ACCOUNTING EQUATION AND THE ANALYSIS OF TRANSACTIONS
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Contents Transactions The accounting equation Effects of transactions on the accounting equation Use of the accounting equation Analysis of transactions using the accounting equation worksheet and the preparation of financial statements (Smart Concepts case study) Conceptual proof of profit
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Transactions Economic events which have an impact on the financial position of an entity Transactions categorised as external internal 3
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The accounting equation Business financed from two sources Source of financing Known as Owners funds (owners / investors) Owners equity Borrowed funds (lenders) Liabilities Funds used to buy assets Owners funds and borrowed funds represent claims on assets 4
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The accounting equation ... Sum of assets = Claims against the entity Sum of assets = Total sources of finance Assets = Funds provided by lenders & investors Assets = Borrowed funds & owners funds Assets = Liabilities and Owners equity A = L + OE 5
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  • Fall '19
  • Generally Accepted Accounting Principles, Owner’s Equity, owners funds

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