Accounting Equation and Double Entry system or concept
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Every accounting student needs to really understand the most basic accounting concept or principle which is the system of double entry and the accounting equation Below are some guidelines and simple snapshots for students to take note of what accountant means by double entry system and accounting equation. Besides there are two worked sample examples with answers to further enhance your understanding.
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Assets | = | Capital | + | Liabilities | |
Increase | Dr | = | Cr | + | Cr |
Decrease | Cr | = | Dr | + | Dr |
WORKED EXAMPLES OF ACCOUNTING EQUATION
SAMPLE NO.1
1.0 | Assets | Liabilties | Capital |
a | 40,000 | 10,000 | ? |
b | 15,000 | ? | 11,000 |
c | ? | 5,000 | 10,000 |
d | 11,000 | 8,000 |
Answer:
1a $30,000 ($40,000-$10,000)
1b $4,000 ($15,000-$11,000)
1c $15,000 ($5,000+$10,000)
1d $3,000 ($11,000-$8,000)
SAMPLE NO.2
The following is the summary data of ABC Ltd for August presented in equation form. Describe each of the transactions that occurred during August.
2.0 | ASSET
Cash |
ASSETS
Supplies |
ASSETS
Equipment |
= LIABILITIES | + | |
a | +$10,000 | +$10,000 | Capital | |||
b | -$2,000 | +$2,000 | ||||
c | -$200 | +$200 | ||||
d | +$700 | $700 | ||||
e | +$1,000 | +$1,000 | Income | |||
f | -$600 | -$600 | Salaries | |||
g | -$300 | -$300 | ||||
h | -$100 | -$100 | Drawing | |||
$7,800 | $200 | $2,700 | = $400 + | $10,300 |
Answer:
2a The owner made an investment by injecting cash as capital
2b Equipment was bought and paid for
2c Supplies were bought and paid for
2d Additional equipment was bought on account creating a liability
2e The company recorded an income for work done for customers
2f The company paid salaries to the workers
2g Cash was paid to reduce amount owing to Accounts Payable(Liability)
2h Owner withdrew cash for her personal use.
[ also read more details on dual aspect concept or double entry concept in another article ]
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