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Double Entry System DRCR Accounting Equation A ssets = O wner’s E quity + L iabilities Items of value owned by the business The funds of a business.

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Presentation on theme: "Double Entry System DRCR Accounting Equation A ssets = O wner’s E quity + L iabilities Items of value owned by the business The funds of a business."— Presentation transcript:

1

2 Double Entry System DRCR

3 Accounting Equation

4 A ssets = O wner’s E quity + L iabilities 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

5 A ssets = O wner’s E quity + L iabilities 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

6 A ssets = O wner’s E quity + L iabilities Every transaction will affect 2 items. The equation will still balance!

7 A = OE + L A = OE + L TRANSACTION THAT AFFECTS BOTH ASSET AND LIABILITY TRANSACTION THAT AFFECTS BOTH ASSET AND LIABILITY ASSET  LIABILITY  ASSET  LIABILITY  ASSET  LIABILITY  ASSET  LIABILITY  TRANSACTION THAT AFFECTS BOTH ASSET AND OWNER’S EQUITY TRANSACTION THAT AFFECTS BOTH ASSET AND OWNER’S EQUITY ASSET  OWNER’S EQUITY  ASSET  OWNER’S EQUITY  ASSET  OWNER’S EQUITY  ASSET  OWNER’S EQUITY 

8 ASSET  ASSET  ASSET  ASSET  LIABILITY  LIABILITY  A = OE + L A = OE + L TRANSACTION THAT AFFECTS TRANSACTION THAT AFFECTS ASSETS ONLY ASSETS ONLY TRANSACTION THAT AFFECTS TRANSACTION THAT AFFECTS LIABILITIES ONLY LIABILITIES ONLY

9 Examples : a) John began business with cash in hand $5000. Cash  $5000  $5000 Cash  $5000 Capital  $5000 b) The firm took a bank loan of $8000. Cash  $8000  $8000 Cash  $8000 Bank Loan  $8000 Motor Vehicle  $2000 Cash  $2000 A = OE + L A = OE + L c) Being purchase of motor vehicle from ABC Trading for $2000. ABC Trading for $2000.

10 Examples : A = OE + L A = OE + L e) Being receipt of $3500 in cheque from a debtor. Debtors  $3500 Cash at  $3500 Debtors  $3500 Cash at Bank  $3500 d) Being payment of $500 to Creditor, Peter. Cash  $500  $500 Cash  $500 Creditors  $500

11 Examples : A = OE + L A = OE + L f) Being repayment of bank loan for $1500. Cash  $1500  $1500 Cash  $1500 Bank Loan  $1500 g) Being purchase of office equipment from Lee Trading on credit for $780. Lee Trading on credit for $780. Office Equipment  $780 Creditors  $780 Office Equipment  $780 Creditors  $780 (Lee Trading)

12 Assets = Owner’s Equity + Liabilities Assets = Owner’s Equity + Liabilities ACCOUNTING EQUATION

13 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!

14 BALANCE SHEET AS AT 1 Jan 2000 BALANCE SHEET AS AT 1 Jan 2000 Owner’s Equity $ Capital Add: Profits Less: Drawings Long Term Liabilities Loan from bank Current Liabilities Creditors Other creditors Fixed Assets $ $ Fixed Assets $ $ Building Building Office Equipment Office Equipment Motor Vehicle Motor Vehicle Fixtures Fixtures Current Assets Current Assets Stock (*closing) Stock (*closing) Debtors Debtors Bank Bank Cash Cash Assets = Owner’s Equity + Liabilities Liabilities Same figure

15 a) Owner brought in cash $2000 as additional capital A = OE + L BALANCE SHEET AS AT 1 Jan 2000 BALANCE SHEET AS AT 1 Jan 2000 Owner’s Equity $ Capital Long Term Liabilities Loan from bank 3000 Current Liabilities Creditors 6650 Fixed Assets $ $ Fixed Assets $ $ Motor Vehicle Motor Vehicle Fixtures Fixtures Current Assets Current Assets Stock 4570 Stock 4570 Debtors 7400 Debtors 7400 Cash 630 Cash Example 2 :

16 BALANCE SHEET AS AT 1 Jan 2000 BALANCE SHEET AS AT 1 Jan 2000 Owner’s Equity $ Capital Long Term Liabilities Loan from bank 3000 Current Liabilities Creditors 6650 Fixed Assets $ $ Fixed Assets $ $ Motor Vehicle Motor Vehicle Fixtures Fixtures Current Assets Current Assets Stock 4570 Stock 4570 Debtors 7400 Debtors 7400 Cash 630 Cash Example 2 : b) Owner paid off the loan $

17 c) Owner paid creditors $ BALANCE SHEET AS AT 1 Jan 2000 BALANCE SHEET AS AT 1 Jan 2000 Owner’s Equity $ Capital Long Term Liabilities Loan from bank 3000 Current Liabilities Creditors 6650 Fixed Assets $ $ Fixed Assets $ $ Motor Vehicle Motor Vehicle Fixtures Fixtures Current Assets Current Assets Stock 4570 Stock 4570 Debtors 7400 Debtors 7400 Cash 630 Cash Example 2 :

18 BALANCE SHEET AS AT 31 Dec 2000 Owner’s Equity $ $ Capital Long Term Liabilities Loan from bank 2000 Current Liabilities Creditors 5550 Fixed Assets $ $ Fixed Assets $ $ Motor Vehicle Motor Vehicle Fixtures Fixtures Current Assets Current Assets Stock 4570 Stock 4570 Debtors 7400 Debtors 7400 Cash 530 Cash

19 IN CLOSING…


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