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Double Entry System

Double Entry System. DR. CR. Accounting Equation. The funds of a business provided by its owners – CAPITAL PLUS: the profits entitled to him Less: Drawings. Debts owed by a business to external parties such as suppliers. Items of value owned by the business.

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Double Entry System

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  1. Double Entry System DR CR

  2. Accounting Equation

  3. The funds of a business provided by its owners –CAPITAL PLUS: the profits entitled to him Less: Drawings Debts owed by a business to external parties such as suppliers Items of value owned by the business Assets = Owner’sEquity + Liabilities

  4. Land & Buildings Motor vehicles Office Equipment Fixtures/Fittings Stock/Inventory (closing) Cash Debtors/Acc Receivables Creditors/Acc Receivables Loan from bank Other creditors Capital - Drawings + Profits Assets = Owner’sEquity + Liabilities

  5. Assets = Owner’sEquity + Liabilities Every transaction will affect 2 items. The equation will still balance!

  6. A = OE +L TRANSACTION THAT AFFECTS BOTH ASSET AND LIABILITY ASSET LIABILITY  ASSETLIABILITY

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

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

  9. Examples : a) John began business with a cash contribution of R5000. A= OE +L BankR5000 = Capital R5000 + 0 +

  10. The firm took a bank loan of R8000. A= OE +L BankR8000 = 0 + Loan R8000

  11. Purchase a motor vehicle from • ABC Trading for R200 000. A= OE + L VehiclesR200 000 = 0 + 0 BankR200 000

  12. d) Payment of R500 to Creditor, Peter. A= OE +L BankR500 = 0 + Creditors  R500

  13. e) Areceipt of R3500 from a debtor. A= OE +L DebtorsR3500 = 0 + 0 Bank R3500

  14. f) Arepayment of bank loan for R1500. A= OE +L BankR1500= 0 + Loan R1500

  15. g) Apurchase of office equipment from Lee Trading on credit for R780. A= OE +L EquipmentR780= 0 + CreditorsR780(Lee Trading)

  16. ACCOUNTING EQUATION Assets= Owner’s Equity +Liabilities

  17. 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!

  18. Assets =Owner’s Equity + Liabilities BALANCE SHEET AS AT 1 Jan 2012 Non-Current AssetsR Land & Buildings Equipment Vehicles Furniture & Fixtures Current Assets Inventory (*closing) Debtors/Acc Rec Bank Owner’s Equity R Capital Add: Profits Less: Drawings Non-Current Liabilities Loan Current Liabilities Creditors Other creditors Same figure

  19. A = OE + L Example 2 : BALANCE SHEET AS AT 1 Jan 2012 Non-Current Assets R Vehicle 25000 Fixtures 10050 35050 Current Assets Inventory 4570 Debtors 7400 Bank 630 12600 Owner’s Equity R Capital 38000 Non-Current Liabilities Loan 3000 Current Liabilities Creditors 6650 47650 47650 + 2000 + 2000 a) Owner brought in cash R2000 as additional capital

  20. Example 2 : BALANCE SHEET AS AT 1 Jan 2012 Non-Current Assets R Vehicle 25000 Fixtures 10050 35050 Current Assets Inventory 4570 Debtors 7400 Bank 630 12600 Owner’s Equity R Capital 38000 Non-Current Liabilities Loan 3000 Current Liabilities Creditors 6650 + 2000 + 2000 47650 47650 - 1000 - 1000 b) Owner paid off the loan R1000

  21. Example 2 : BALANCE SHEET AS AT 1 Jan 2012 Non-Current Assets R Vehicle 25000 Fixtures 10050 35050 Current Assets Inventory 4570 Debtors 7400 Bank 630 12600 Owner’s Equity R Capital 38000 Non-Current Liabilities Loan 3000 Current Liabilities Creditors 6650 + 2000 - 1000 - 1000 + 2000 47650 47650 - 1100 - 1100 c) Ownerpaid creditors R1100

  22. BALANCE SHEET AS AT 31 Dec 2012 Non-Current Assets R Vehicles 25000 Fixtures 10050 35050 Current Assets Inventory 4570 Debtors 7400 Bank 530 12500 Owner’s Equity R Capital 40000 Non-Current Liabilities Loan 2000 Current Liabilities Creditors 5550 47550 47550

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