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Double Entry System

Double Entry System. DR. CR. Accounting Equation. 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. Items of value owned by the business. A ssets = O wner’s E quity + L iabilities. Building

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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 and the profits entitled to him Debts owed by a business to external parties such as suppliers Items of value owned by the business Assets = Owner’sEquity + Liabilities

  4. Building Motor vehicle Office Equipment Fixtures Stock (closing) Cash in hand Cash at bank Capital Profits Creditors Loan from bank Other creditors Assets = Owner’sEquity + Liabilities * Explain these terms to students

  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 TRANSACTION THAT AFFECTS BOTH ASSET AND OWNER’S EQUITY ASSET OWNER’S EQUITY  ASSETOWNER’S EQUITY

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

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

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

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

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

  12. 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!

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

  14. A = OE + L Example 2 : BALANCE SHEET AS AT 1 Jan 2000 Fixed Assets$ $ Motor Vehicle 25000 Fixtures 10050 35050 Current Assets Stock 4570 Debtors 7400 Cash 630 12600 Owner’s Equity $ Capital 38000 Long Term Liabilities Loan from bank 3000 Current Liabilities Creditors 6650 47650 47650 + 2000 + 2000 a) Owner brought in cash $2000 as additional capital

  15. Example 2 : BALANCE SHEET AS AT 1 Jan 2000 Fixed Assets$ $ Motor Vehicle 25000 Fixtures 10050 35050 Current Assets Stock 4570 Debtors 7400 Cash 630 12600 Owner’s Equity $ Capital 38000 Long Term Liabilities Loan from bank 3000 Current Liabilities Creditors 6650 + 2000 + 2000 47650 47650 - 1000 - 1000 b) Owner paid off the loan $1000

  16. Example 2 : BALANCE SHEET AS AT 1 Jan 2000 Fixed Assets$ $ Motor Vehicle 25000 Fixtures 10050 35050 Current Assets Stock 4570 Debtors 7400 Cash 630 12600 Owner’s Equity $ Capital 38000 Long Term Liabilities Loan from bank 3000 Current Liabilities Creditors 6650 + 2000 - 1000 - 1000 + 2000 47650 47650 - 1100 - 1100 c) Ownerpaid creditors $1100

  17. BALANCE SHEET AS AT 31 Dec 2000 Fixed Assets$ $ Motor Vehicle 25000 Fixtures 10050 35050 Current Assets Stock 4570 Debtors 7400 Cash 530 12500 Owner’s Equity $ $ Capital 40000 Long Term Liabilities Loan from bank 2000 Current Liabilities Creditors 5550 47550 47550

  18. IN CLOSING…

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