RECAP LECTURE 10

RECAP LECTURE 10

CATEGORIES OF ACCOUNTS• IN FINANCIAL ACCOUNTING 5 CATEGORIES OF

ACCOUNTS MAY BE IDENTIFIED1. ASSET ACCOUNT2. LIABILITY ACCOUNT3. EQUITY ACCOUNT4. REVENUE ACCOUNT5. EXPENSE ACCOUNT

RECAP LECTURE 10

ASSET ACCOUNT

• 1)______________

• 2)______________

• 3)_______________

RECAP LECTURE 10

LIABILITY ACCOUNT

• 1)_______________

• 2)_______________

• 3)________________

RECAP LECTURE 10

EQUITY ACCOUNT

• 1)______________

• 2)______________

• 3)_____________

THE ACCOUNTING EQUATION

• The whole of financial accounting is based on the accounting equation.

• This can be stated to be that for a firm to operate it needs resources and that these resources have had to be supplied to the firm by someone

THE ACCOUNTING EQUATION

• The resources possessed by the firm are known as Assets and obviously some of these resources will have been supplied by the owner of the business.

• The total amount supplied by him is known as Capital. If he was the only one who had supplied the assets then the following equation would hold true;

Asset = Capital

THE ACCOUNTING EQUATION

• On the other hand, some of the assets will normally have been provided by someone other than the owner. The indebtedness of the firm for these resources is known as Liabilities. The equation can now be expressed as:

Assets = Capital + Liabilities

THE ACCOUNTING EQUATION

Assets = Capital + Liabilities • It can be seen that the two sides of the

equation will have the same totals. This is because we are dealing with the same things from two different points of view. It is:

• Resources: what they are = Assets Resources: Who supplied them = Capital + Liabilities

THE ACCOUNTING EQUATION

Assets = Capital + LiabilitiesIt is a fact that the totals of each side will always equal one another, and that this will always be true no matter how many transactions are entered into.The actual assets, capital and liabilities may change, but the equality of assets with that of the total of capital and liabilities will always hold true

DOUBLE ENTRY ACCOUNTING

• The term double entry accounting refers to a system of keeping a firm’s financial records whereby each transaction affects two or more account with equal debits and credits.

• A debit is an entry on the left-hand side of an account, A credit is an entry on a right- hand side of an account

DOUBLE ENTRY ACCOUNTING

• The double-entry system developed by Italian merchants in the 13th century, is largely unchanged today.

• Whether the system is manual or computerized double-entry accounting is the main record-keeping system in use today.

DOUBLE ENTRY ACCOUNTING

• The T-Account• The mechanics of double-entry accounting is

illustrated by using a T-account, which may be defined as the simplest form of bookkeeping account.

• A title is placed above the account, and debit and credit entries are entered on the left and right side respectively. (Draw)

DOUBLE ENTRY ACCOUNTING

ACCOUNTS To Record Entry in Account• Assets Increase Debit Decrease Credit

• Liabilities Increase Credit Decrease Debit

• Capital Increase Credit Decrease Debit

DOUBLE ENTRY ACCOUNTING

Practical Question:1. On 1st May 19-7 Bashir started in business and

deposited Rs5000 into a bank account.2. On 3rd May 19-7 Bashir buys a building for

Rs3000.3. On 6th May 19-7 Bashir buys some goods for

Rs500 from Dawood to pay later.4. On 10th May 19-7 goods which had cost Rs100

were sold to Junaid, the money to be paid later

DOUBLE ENTRY ACCOUNTING

5. On 13 May 19-7 goods which had cost Rs50 were sold to Danish, he paid immediately by cheque.

6. On 15 May 19-7 Bashir pays a cheque for Rs200 to Dawood in part payment of the amount owing Required:• Prepare Journal / Double Entries• Prepare T-accounts• Prepare Statement of financial position