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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

Double Entry

System

DR

CR



Double entry system

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


Double entry system

Building profits entitled to him

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


Double entry system

A profits entitled to himssets = Owner’sEquity + Liabilities

Every transaction will affect 2 items.

The equation will still balance!


Double entry system

A profits entitled to him= 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


Double entry system

A profits entitled to him= OE +L

TRANSACTION THAT AFFECTS

ASSETS ONLY

ASSET ASSET 

TRANSACTION THAT AFFECTS

LIABILITIES ONLY

LIABILITYLIABILITY


Double entry system

Examples : profits entitled to him

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


Double entry system

Examples : profits entitled to him

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


Double entry system

Examples : profits entitled to him

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)


Double entry system

ACCOUNTING EQUATION profits entitled to him

Assets= Owner’s Equity +Liabilities


Double entry system

What is a Balance Sheet? profits entitled to him

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!


Double entry system

Assets = profits entitled to himOwner’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


Double entry system

A = OE + L profits entitled to him

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


Double entry system

Example 2 : profits entitled to him

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


Double entry system

Example 2 : profits entitled to him

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


Double entry system

BALANCE SHEET profits entitled to him

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


Double entry system

IN CLOSING… profits entitled to him