ACCA Foundation Financial Accounting Chapter 2 Double entry systemACCA FoundationFinancial AccountingChapter 2 Double entry systemLecture Outline:The accounting equationThe double entry systemStock movementExpenses: profit or lossA. The Accounting EquationResources in the Business (Assets)Resources supplied by the Owner (Capital) =Assets =Capital + Liabilities(Balance Sheet Equation)Assets(Resources :What they are)Capital + Liability( Resources : Who Supplied them )=AssetsBuildings, machinery, motor vehicles Stocks of goods, debtors and bankCapitalNet worth of the businessOften called the owners equity （业主权益）LiabilitiesObligations or DebtsLong-term liabilities : loan (more than one year)Current liabilities : Creditors, accrual expenses, dividendClassification capital liability & assetPhotocopy machineComputerMoney invested by ownerBuildingPhotocopy papersBank overdraftCreditor （债权人）Debtor (债务人）Loan from bankLiabilityCapitalAssetItems1. The introduction of capitalOn 1 May 27004 Grace started in business and deposited $10,000 into a bank account opened specially for the business.The effects of business transactions Grace Balance Sheet as at 1 May 200410,00010,00010,000Capital10,000Cash at bank$Assets2. The purchase of assets by chequeOn 7 May 2004 Grace buys office furniture for $600 and motor vehicle for $4,800 paying by cheque.GraceBalance Sheet as at 7 May 2004?0?0?0?0?0?0?0Assets?0$?0?0?0$Office furniture600?0Capital?010,000Motor vehicle4,800?0?0?0?0Cash at bank4,600?0?0?0?0?0?0?0?0?010,00010,0003. The purchase of an asset and the incurring of a liabilityOn 10 May 2004 Grace buys some goods for $700 from Smith, and agrees to pay within next three weeks.Creditor（债权人） : A person to whom money is owned for goods or services.GraceBalance Sheet as at 10 May 2004?0?0?0?0?0?0?0Assets?0$?0?0?0$Office furniture600?0Capital?010,000Motor vehicle4,800?0?0?0?0Stock of goods700?0?0LiabilitiesCreditor - Smith?0700Cash at bank4,600?0?0?0?0?0?0?0?0?010,70010,7004.Sale of an asset for immediate paymentOn 15 May 2004 goods had cost $200 were sold to Daley for the same amount, Daley paying for them immediately by cheque.GraceBalance Sheet as at 15 May 2004?0?0?0?0?0?0?0Assets?0$?0?0?0$Office furniture600?0Capital?010,000Motor vehicle4,800?0?0Liabilities?0?0Stock of goods500?0Creditor - Smith?0700Cash at bank4,800?0?0?0?0?0?0?0?0?010,70010,7005.Sale of an asset on creditOn 21 May 2004 goods which had cost $200 were sold to Brown for the same amount, the money to be paid later.Debtor（债务人） : A person who owes money to a business for goods or services supplied to him.GraceBalance Sheet as at 21 May 2004?0?0?0?0?0?0?0Assets?0$?0?0?0$Office furniture600?0Capital?010,000Motor vehicle4,800?0?0Liabilities?0?0Stock of goods300?0Creditor - Smith?0700Debtor - Brown200?0?0?0?0Cash at bank4,800?0?0?0?0?0?0?0?0?010,70010,7006. The payment of a liabilityOn 23 May 2004 Grace pays a cheque for $400 to Smith in part payment of the amount owing. GraceBalance Sheet as at 23 May 2004?0?0?0?0?0?0?0Assets?0$?0?0?0$Office furniture600?0Capital?010,000Motor vehicle4,800?0?0Liabilities?0?0Stock of goods300?0Creditor - Smith300Debtor - Brown200?0?0?0?0Cash at bank4,400?0?0?0?0?0?0?0?0?010,30010,3007. Receipt of money from a debtorBrown, who owned Grace $200, makes a part payment of $100 by cheque on 27 May 2004. GraceBalance Sheet as at 27 May 2004?0?0?0?0?0?0?0Assets?0$?0?0?0$Office furniture600?0Capital?010,000Motor vehicle4,800?0?0Liabilities?0?0Stock of goods300?0Creditor - Smith300Debtor - Brown100?0?0?0?0Cash at bank4,500?0?0?0?0?0?0?0?0?010,30010,3008. A combination type transactionOn 31 May 2004, Grace bought a building for $20,000 with payment $4,000 by cheque and other $16,000 obtained by borrowing from bank.GraceBalance Sheet as at 31 May 2004?0?0?0?0?0?0?0Assets?0$?0?0?0$Building ?020,000?0Capital?010,000Office furniture600?0?0?0?0Motor vehicle4,800?0