ACCOUNTING EQUATION Assets Owners Equity Liabilities Items of
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 Capital Creditors Profits Loan from bank Other creditors 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!
Source Documents Can you link? ? (originals) Books of Prime Entry (Journal Entries) Ledgers Trial Balance Adjustments Reports
A = OE + L TRANSACTION THAT AFFECTS BOTH ASSET AND LIABILITY ASSET LIABILITY TRANSACTION THAT AFFECTS BOTH ASSET AND OWNER’S EQUITY ASSET OWNER’S EQUITY
A = OE + L TRANSACTION THAT AFFECTS ASSETS ONLY ASSET TRANSACTION THAT AFFECTS LIABILITIES ONLY LIABILITY
Examples : a) A = OE + L John began business with cash in hand $5000. Cash $5000 Capital $5000 b) The firm took a bank loan of $8000. Cash $8000 Bank Loan $8000 c) 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
IN CLOSING…
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