Double Entry

System

DR

CR

Accounting Equation

Assets = Owners 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 = Owners Equity + Liabilities

Building

Capital

Creditors

Motor vehicle

Profits

Loan from bank

Office Equipment

Other creditors

Fixtures
Stock (closing)
Cash in hand
Cash at bank

* Explain these terms to students

Assets = Owners Equity + Liabilities

Every transaction will affect 2 items.
The equation will still balance!

OE

TRANSACTION THAT AFFECTS BOTH

ASSET AND LIABILITY

A SSET

L IABILITY

A SSET

L IABILITY

TRANSACTION THAT AFFECTS BOTH

ASSET AND OWNERS EQUITY

A SSET

A SSET

O WNERS E QUITY
O WNERS E QUITY

OE

TRANSACTION THAT AFFECTS

ASSETS ONLY

A SSET A SSET
TRANSACTION THAT AFFECTS
LIABILITIES ONLY
L IABILITY

L IABILITY

Examples : A

=
OE + L
a) John began business with cash in
hand
$5000.
Cash

$5000

Capital

$5000

b) The firm took a bank loan of

$8000.
Cash

c)

$8000

Bank Loan

$8000

Being purchase of motor vehicle

from
ABC
Trading
for
$2000.
Motor Vehicle $2000
Cash $2000

Examples : A

OE

d) Being payment of $500 to Creditor,

Peter.
Cash $500

Creditors $500

e) Being receipt of $3500 in cheque from

a debtor.
Debtors $3500

$3500

Cash at Bank

Examples : A

OE

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
Creditors $780

$780

(Lee Trading)

ACCOUNTING
EQUATION

Assets
Owners Equity
Liabilities

=
+

What is a Balance Sheet?

It is a report that is used to present the
Accounting Equation that involves a firms
total assets, total owners 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.
Click
me!

How does it look like?

Assets

Owners Equity +
Liabilities

BALANCE SHEET AS AT 1
Fixed Assets
$
Building
Office Equipment
Motor Vehicle
Fixtures
Current Assets
Stock (*closing)
Debtors
Bank
Cash

Jan 2000

Owners Equity
Capital
Add: Profits
Less: Drawings
Long Term Liabilities
Loan from bank
Current Liabilities
Creditors
Other creditors

Same figure

Example 2 :

OE

BALANCE SHEET AS AT 1 Jan 2000

Fixed Assets
$
Motor Vehicle 25000
Fixtures
10050
Current Assets
Stock
4570
Debtors
7400
Cash + 2000 630

35050

12600
47650

Owners Equity
Capital
+ 2000
38000
Long
Loan
3000

Term Liabilities
from bank

Current Liabilities
Creditors
6650
47650

a) Owner brought in cash $2000 as

additional capital

Example 2 :

BALANCE SHEET AS AT 1 Jan 2000

Fixed Assets
$
Motor Vehicle 25000
Fixtures
10050

35050

Current Assets
Stock
4570
Debtors
7400
- 1000
Cash + 2000 630
12600

Owners Equity
Capital
+ 2000
38000
Long
Loan
3000

Term Liabilities
from bank- 1000

Current Liabilities
Creditors
6650

47650

b) Owner paid off the loan $1000

47650

Example 2 :

BALANCE SHEET AS AT 1 Jan 2000

Fixed Assets
$
Motor Vehicle 25000
Fixtures
10050

35050

Current Assets
Stock
4570
Debtors
7400
- 1000 - 1100
Cash + 2000 630
12600

Owners Equity
Capital
+ 2000
38000
Long
Loan
3000

Term Liabilities
from bank- 1000

Current Liabilities
- 1100
Creditors
6650

47650

c) Owner paid creditors $1100

47650

BALANCE SHEET
AS AT 31 Dec 2000
Fixed Assets $
Motor Vehicle 25000
Fixtures
10050

Owners Equity

Capital
40000

35050
Current Assets
Long Term Liabilities
Stock
4570
Loan from bank
2000
Debtors
7400
Cash
530
Current Liabilities
12500 Creditors
5550
47550

4755

IN CLOSING