Double Entry System

Double EntryDouble Entry

SystemSystem

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

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

Assets = Owner’s Equity + Liabilities

Every transaction will affect 2 items.

The equation will still balance!

A A = = OE OE ++ LL

TRANSACTION THAT AFFECTS BOTH TRANSACTION THAT AFFECTS BOTH

ASSET AND LIABILITY ASSET AND LIABILITY

AASSETSSET LLIABILITY IABILITY

AASSETSSET LLIABILITYIABILITY

TRANSACTION THAT AFFECTS BOTH TRANSACTION THAT AFFECTS BOTH

ASSET AND OWNER’S EQUITY ASSET AND OWNER’S EQUITY

AASSETSSET OOWNER’S WNER’S EEQUITY QUITY

AASSETSSET OOWNER’S WNER’S EEQUITYQUITY

AASSETSSET AASSET SSET

LLIABILITYIABILITY LLIABILITYIABILITY

AA = = OE OE ++ LL

TRANSACTION THAT AFFECTS TRANSACTION THAT AFFECTS

ASSETS ONLY ASSETS ONLY

TRANSACTION THAT AFFECTS TRANSACTION THAT AFFECTS

LIABILITIES ONLYLIABILITIES ONLY

Examples :Examples :a) a) John began business with cash in John began business with cash in

hand hand $5000.$5000.

CashCash $5000$5000 Capital $5000$5000

b)b) The firm took a bank loan of The firm took a bank loan of

$8000.$8000.

CashCash $8000$8000 Bank Loan $8000$8000

Motor VehicleMotor Vehicle $2000$2000 CashCash $2000$2000

AA = = OE OE ++ LL

c)c) Being purchase of motor vehicle Being purchase of motor vehicle

from from ABC Trading for $2000. ABC Trading for $2000.

Examples :Examples : AA = = OE OE ++ LL

e) Being receipt of $3500 in cheque from e) Being receipt of $3500 in cheque from

a debtor.a debtor.

DebtorsDebtors $3500$3500 Cash at Cash at Bank $3500$3500

d) Being payment of $500 to Creditor, d) Being payment of $500 to Creditor,

Peter.Peter.

CashCash $500$500 Creditors $500$500

Examples :Examples : AA = = OE OE ++ LL

f) Being repayment of bank loan for f) Being repayment of bank loan for

$1500. $1500. CashCash $1500$1500 Bank Loan $1500$1500

g) Being purchase of office equipment g) Being purchase of office equipment

from from Lee Trading on credit for $780.Lee Trading on credit for $780. Office EquipmentOffice Equipment $780$780 CreditorsCreditors$780$780

(Lee Trading)

AssetsAssets = =

Owner’s Equity Owner’s Equity ++

LiabilitiesLiabilities

ACCOUNTING ACCOUNTING EQUATIONEQUATION

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!

BALANCE SHEET AS AT 1 BALANCE SHEET AS AT 1 Jan 2000 Jan 2000

Owner’s EquityOwner’s Equity $ $

Capital Capital Add: ProfitsAdd: ProfitsLess: Drawings Less: Drawings

Long Term LiabilitiesLong Term LiabilitiesLoan from bank Loan from bank

Current LiabilitiesCurrent LiabilitiesCreditors Creditors Other creditorsOther creditors

Fixed AssetsFixed Assets $ $$ $

BuildingBuilding Office Equipment Office Equipment Motor Vehicle Motor Vehicle FixturesFixtures

Current AssetsCurrent Assets

Stock (*closing) Stock (*closing) Debtors Debtors BankBank Cash Cash

Assets =Assets = Owner’s Equity + Owner’s Equity +

LiabilitiesLiabilities

Same figure

a) Owner brought in cash $2000 as additional capital

+ + 20002000

A = OE + LA = OE + L BALANCE SHEET AS AT 1 Jan 2000 BALANCE SHEET AS AT 1 Jan 2000

Owner’s EquityOwner’s Equity $ $

Capital 38000Capital 38000

Long Term LiabilitiesLong Term LiabilitiesLoan from bank 3000Loan from bank 3000

Current LiabilitiesCurrent LiabilitiesCreditors 6650Creditors 6650

Fixed AssetsFixed Assets $ $$ $

Motor Vehicle 25000Motor Vehicle 25000 Fixtures Fixtures 1005010050 35050 35050 Current AssetsCurrent Assets

Stock 4570Stock 4570 Debtors 7400Debtors 7400 Cash Cash 630 630

1260012600

4765047650 4765047650

Example 2 :Example 2 :

+ + 20002000

BALANCE SHEET AS AT 1 Jan 2000 BALANCE SHEET AS AT 1 Jan 2000

Owner’s EquityOwner’s Equity $ $

Capital 38000Capital 38000

Long Term LiabilitiesLong Term LiabilitiesLoan from bank 3000Loan from bank 3000

Current LiabilitiesCurrent LiabilitiesCreditors 6650Creditors 6650

Fixed AssetsFixed Assets $ $$ $

Motor Vehicle 25000Motor Vehicle 25000 Fixtures Fixtures 1005010050 35050 35050 Current AssetsCurrent Assets

Stock 4570Stock 4570 Debtors 7400Debtors 7400 Cash Cash 630 630

1260012600

4765047650 4765047650

Example 2 :Example 2 :

+ + 20002000

+ + 20002000

b) Owner paid off the loan $1000

- - 10001000

- - 10001000

c) Owner paid creditors $1100

- - 11001100 - - 11001100

BALANCE SHEET AS AT 1 Jan 2000 BALANCE SHEET AS AT 1 Jan 2000

Owner’s EquityOwner’s Equity $ $

Capital 38000Capital 38000

Long Term LiabilitiesLong Term LiabilitiesLoan from bank 3000Loan from bank 3000

Current LiabilitiesCurrent LiabilitiesCreditors 6650Creditors 6650

Fixed AssetsFixed Assets $ $$ $

Motor Vehicle 25000Motor Vehicle 25000 Fixtures Fixtures 1005010050 35050 35050 Current AssetsCurrent Assets

Stock 4570Stock 4570 Debtors 7400Debtors 7400 Cash Cash 630 630

1260012600

4765047650 4765047650

Example 2 :Example 2 :

+ + 20002000

+ + 20002000

- - 10001000

- - 10001000

BALANCE SHEET BALANCE SHEET

AS AT 31 Dec 2000AS AT 31 Dec 2000

Owner’s EquityOwner’s Equity $ $ $$

Capital Capital 4000040000

Long Term LiabilitiesLong Term LiabilitiesLoan from bank Loan from bank 20002000

Current LiabilitiesCurrent LiabilitiesCreditors Creditors 55505550

Fixed AssetsFixed Assets $ $$ $

Motor Vehicle 25000Motor Vehicle 25000 Fixtures Fixtures 1005010050 35050 35050 Current AssetsCurrent Assets

Stock 4570Stock 4570 Debtors 7400Debtors 7400 Cash Cash 530 530

1250012500

4755047550 4755475500

IN CLOSING…