Slides2.1 - Double Entry Double System DR CR Accounting Equation Assets = Owners Equity Liabilities Items of value owned by the business The funds of a

# Slides2.1 - Double Entry Double System DR CR Accounting...

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Unformatted text preview: Double Entry Double 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 Capital Creditors Motor vehicle Profits Loan from bank Office Equipment 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 ↑ IABILITY ASSET ↓ LIABILITY ↓ TRANSACTION THAT AFFECTS BOTH ASSET AND OWNER’S EQUITY ASSET ↑ ASSET ↓ OWNER’S EQUITY ↑ WNER’S QUITY OWNER’S EQUITY ↓ WNER’S A = OE + L TRANSACTION THAT AFFECTS ASSETS ONLY ASSET ↑ ASSET ↓ SSET TRANSACTION THAT AFFECTS LIABILITIES ONLY LIABILITIES LIABILITY ↑ LIABILITY ↓ Example s : Example a) a) A = OE + L J o hn be g an bus ine s s with c as h in hand \$5000. \$ 5000. Cash ↑\$5000 Capital ↑\$5000 b) The firm to o k a bank lo an o f \$8000. b ) The Cash Cash c) ↑\$8000 Bank Loan ↑\$8000 B e ing purc has e o f mo to r ve hic le fro m ABC Trading ↑\$2000 Cas h ↓\$2000 fo r \$2000. as Motor Vehicle Motor C Example s : Example A = OE + L d) Be ing payme nt o f \$500 to Cre dito r, Pe te r. Cash ↓ \$500 Cash \$ 500 Creditors ↓ \$500 \$ 500 e ) Be ing re c e ipt o f \$3500 in c he que fro m a de bto r. de Debtors ↓ \$3500 \$ 3500 Cash at Bank ↑\$3500 Example s : Example A = OE + L f) Be ing re payme nt o f bank lo an fo r \$1500. Cash ↓ \$1500 Cash \$ 1500 Bank Loan ↓ \$1500 \$ 1500 g ) Be ing purc has e o f o ffic e e quipme nt fro m Le e Trading o n c re dit fo r \$780. Le Office Equipment ↑\$780 Office (Lee Trading) Creditors↑\$780 Creditors ACCOUNTING EQUATION EQUATION Assets Assets = Owner’s Equity + Liabilities 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 Assets = Owner’s Equity + Liabilities Liabilities BALANCE SHEET AS AT 1 Fixed Assets \$ Fixed Building Building Office Equipment Motor Vehicle Fixtures Fixtures Current Assets Current Stock (*closing) Debtors Bank Bank Cash \$ Jan 2000 Owner’s Equity Owner’s Capital Capital Add: Profits Add: Less: Drawings Less: Long Term Liabilities Long Loan from bank Loan Current Liabilities Current Creditors Creditors Other creditors Other Same figure \$ Example 2 : A = OE + L BALANCE SHEET AS AT 1 Jan 2000 Fixed Assets \$ \$ Fixed Motor Vehicle 25000 Motor Fixtures 10050 10050 35050 Current Assets Current Stock 4570 Stock Debtors 7400 Debtors Cash 6 + 2 0 0 0 30 12600 12600 Owner’s Equity Owner’s Capital \$ 38000 + 2000 Long Term Liabilities Loan from bank 3000 Current Liabilities Creditors 47650 47650 a) Owner brought in cash \$2000 as additional capital 6650 47650 47650 Example 2 : BALANCE SHEET AS AT 1 Jan 2000 Fixed Assets \$ \$ Fixed Motor Vehicle 25000 Motor Fixtures 10050 10050 35050 Current Assets Current Stock 4570 Stock Debtors 7400 Debtors - 1000 Cash 0 + 2 0 0630 12600 12600 Owner’s Equity Owner’s Capital \$ 38000 + 2000 Long Term Liabilities Loan from bank 00 - 1 03000 Current Liabilities Creditors 47650 47650 b) Owner paid off the loan \$1000 6650 47650 47650 Example 2 : BALANCE SHEET AS AT 1 Jan 2000 Fixed Assets \$ \$ Fixed Motor Vehicle 25000 Motor Fixtures 10050 10050 35050 Current Assets Current Stock 4570 Stock Debtors 7400 Debtors - 1000 Cash 0 + 2 0 0630 12600 12600 Owner’s Equity Owner’s Capital 38000 + 2000 Long Term Liabilities Loan from bank 00 - 1 03000 - 1100 1 100 Current Liabilities Creditors 6650 - 1100 1 100 47650 47650 c) \$ Owner paid creditors \$1100 47650 47650 BALANCE SHEET AS AT 31 Dec 2000 AS Fixe d As s e ts \$ \$ Fixe Mo to r Ve hic le 25000 Mo Fixture s 10050 1 0050 3 5050 Curre nt As s e ts Curre S to c k 4570 De bto rs 7400 De Cas h 5 30 12500 1 2500 47550 4 7550 Owne r’s Equity Capital Capital \$ \$ 4 0000 Lo ng Te rm Liabilitie s Lo an fro m bank 2000 Curre nt Liabilitie s Cre dito rs 5550 47550 4 7550 IN CLOSING… ...
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• Spring '12
• Harry
• Balance Sheet, Generally Accepted Accounting Principles