Accounting equation

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 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 items The equation will still balance! A = OE + L TRANSACTION THAT AFFECTS BOTH ASSET AND LIABILITY A SSET ↑ L IABILITY ↑ A SSET ↓ L IABILITY ↓ TRANSACTION THAT AFFECTS BOTH ASSET AND OWNER’S EQUITY A SSET ↑ ↑ A SSET ↓ O WNER’S E QUITY O WNER’S A = OE + L TRANSACTION THAT AFFECTS ASSETS ONLY A SSET ↑ A SSET ↓ TRANSACTION THAT AFFECTS LIABILITIES ONLY L IABILITY ↑ L IABILITY ↓ Example s : A a) = OE + L Jo hn be g an bus ine s s with c as h in hand $5000 Cash ↑ $5000 Capital ↑ $5000 b) The firm to o k a bank lo an o f $8000 Cash c) ↑ $8000 Bank Loan ↑ $8000 Be ing purc has e o f mo to r ve hic le fro m ABC Trading fo r $2000 Motor Vehicle ↑ $2000 Cas h ↓ $2000 Example s : A = OE + L d) Be ing payme nt o f $500 to Cre dito r, Pe te r Cash ↓ $500 Creditors ↓ $500 e ) Be ing re c e ipt o f $3500 in c he que fro m a de bto r Debtors ↓ $3500 Cash at Bank ↑ $3500 Example s : A = OE + L f) Be ing re payme nt o f bank lo an fo r $1500 Cash ↓ $1500 Bank Loan ↓ $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 Office Equipment (Lee Trading) ↑ $780 Creditors ↑ $780 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 2000 Owner’s Equity + Liabilities BALANCE SHEET AS AT Fixed Assets $ = $ Building Office Equipment Motor Vehicle Fixtures Current Assets Stock (*closing) Debtors Bank Cash Jan Owner’s Equity $ Capital Add: Profits Less: Drawings Long Term Liabilities Loan from bank Current Liabilities Creditors Other creditors Same figure Example : 2000 = OE + L BALANCE SHEET AS AT Jan Fixed Assets $ A $ Motor Vehicle 25000 Fixtures 10050 35050 Current Assets Stock 4570 + 2000 Debtors 7400 Cash 630 12600 47650 Owner’s Equity $ Capital 38000 + 2000 Long Term Liabilities Loan from bank 3000 Current Liabilities Creditors 6650 47650 a) Owner brought in cash $2000 as additional capital Example : 2000 BALANCE SHEET AS AT Jan Fixed Assets $ $ Motor Vehicle 25000 Fixtures 10050 35050 Current Assets Stock 4570 - 1000 + 2000 Debtors 7400 Cash 630 12600 47650 Owner’s Equity $ Capital 38000 + 2000 - 1000 Long Term Liabilities Loan from bank 3000 Current Liabilities Creditors 6650 b) Owner paid off the loan $1000 47650 Example : 2000 BALANCE SHEET AS AT Jan Fixed Assets $ $ Motor Vehicle 25000 Fixtures 10050 35050 Current Assets Stock 4570 - 1000 - 1100 + 2000 Debtors 7400 Cash 630 12600 47650 Owner’s Equity $ Capital 38000 + 2000 - 1000 Long Term Liabilities Loan from bank 3000 - 1100 Current Liabilities Creditors 6650 c) Owner paid creditors $1100 47650 BALANCE SHEET AS AT 31 Dec 2000 Fixe d As s e ts $ $ Mo to r Ve hic le 25000 Fixture s 10050 35050 Curre nt As s e ts S to c k 4570 De bto rs 7400 Cas h 530 12500 47550 Owne r’s Equity Capital $ $ 40000 Lo ng Te rm Liabilitie s Lo an fro m bank 2000 Curre nt Liabilitie s Cre dito rs 5550 47550 IN CLOSING… [...].. .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 ... Trading) ↑ $780 Creditors ↑ $780 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.. .Accounting Equation Assets = Owner’s Equity + Liabilities Items of value owned by the business The funds... terms to students Assets = Owner’s Equity + Liabilities Every transaction will affect items The equation will still balance! A = OE + L TRANSACTION THAT AFFECTS BOTH ASSET AND LIABILITY A SSET