Debit Credit

ASSETS OWNER’S EQUITY

Non-current assets
Direct Owner’s equity
(fixed assets) (affects the owner’s interest
Land and buildings in the business directly)

Equipment
Dr Cr C
Dr Cr
r
Balance Drawings Capital
Sheet Vehicles
Section Indirect Owner’s equity
(affects the owner’s interest in the business
Current assets Trading stock indirectly, e.g. Income – expenses = profit
Savings account

Bank LIABILITIES
Non-current liabilities
Debtors
Loan: Nation Bank
Current liabilities Dr Cr
Bank overdraft
Petty cash Creditors
Cash float

Indirect Owner’s equity Indirect Owner’s equity

Expenses (will decrease the profit) Income (will increase the profit)
 Trading license  Current income
 Wages  Interest on fixed deposit
 Salaries  Rent income
Nominal  Telephone Dr Cr  Donations received Dr Cr
Account  Water & electricity  Commission income
Section  Rent expense  Interest income
 Fuel  Sales
 Repairs
 Advertising
 Insurance
 Material
 Stationery
 Interest on overdraft
Belongs
 Packing material
to the
 Cost of sales owner
INCOME – EXPENDITURE = NET PROFIT
ACCOUNTING EQUATION AND TERMINOLOGY

The Accounting equation:

ASSETS = OWNERS' EQUITY + LIABILITIES.

Let us first revise the terminology, by studying the following diagrams:

1. ASSETS:

ASSETS
Assets are the possessions or property of a business
undertaking

NON-CURRENT ASSETS CURRENT ASSETS

These are properties / possessions

consisting of cash or of something
TANGIBLE ASSETS FINANCIAL that can be converted into cash
(FIXED ASSETS) ASSETS within one year.

These are properties This is money of the E.g.: • CASH, which is the money
/ possessions with a business which is in
long life which are invested for specific - the bank account,
not purchased for the periods. - the cash float
purpose of resale, - and the petty cash
but to be used in the E.g.: • Fixed deposit • TRADING INVENTORY,
business over a long merchandise / goods
period of time. purchased with the sole
purpose of resale.
E.g.: • Land and • DEBTORS, are institutions
buildings or persons who owe money
• Vehicles to the business.
• Equipment

Important to remember is:

All asset accounts increase on the debit side and decrease on the credit side of the
account!

ASSET
DEBIT CREDIT
Increase (+) Decrease (-)
2. OWNERS' EQUITY:

OWNERS EQUITY

Owners' Equity is the owners, monetary interest in the business.

CAPITAL, the amount of money the INCOME, the money a business generates
owner invests in the business. It through its operation, e.g. Sales made by
increases the Owners' equity. the business. It increases the Owners'
DRAWINGS, the amount of money equity.
the owner withdrew from the business EXPENSES, payments made for the
for his own personal use. It operation of the business (not for
decreases the Owners' equity. possessions), e.g. Stationery. It decreases
the Owners' equity.

Important to remember is:

All owners' equity accounts decrease on the debit side and increase on the credit
side of the account!

OWNERS' EQUITY
DEBIT CREDIT
Decrease (-) Increase (+)
3 LIABILITIES:

LIABILITIES

Liabilities are amounts owed to other persons or institutions that

have to be repaid within specific times.

NON-CURRENT LIABILITIES CURRENT LABILITIES

These are LONG TERM LIABILITIES, These are short term debts which have to
which are debts that are repaid over a be repaid within a period of one year, i.e.
long period of time, at least over a within 12 months or less.
period longer than one year, i.e. over a
period of more than 12 months. E.g.: • CREDITORS, persons or institutions
to whom the business owes money.
E.g.: • A loan for a large amount of • A BANK OVERDRAFT, which
money at the bank, occurs when the business withdraws
• A mortgage bond. more money, than what is available,
in the current bank account of the
business. (Only allowed after it was
approved at the bank.)

Important to remember is:

All Liability accounts decrease on the debit side and increase on the credit side of
the account!

LIABILITIES
DEBIT CREDIT
Decrease (-) Increase (+)
REVISION TEST TOTAL: 30
(For informal assessment, the marks are not recorded)

Study the table given below. Then complete the table, using the examples as guideline.

BALANCE
INCOME
TYPE OF TYPE OF OWNERS SHEET- /
No ACCOUNT or
ASSET LIABILITY EQUITY NOMINAL
EXPENSE
ACCOUNT
Balance
current
e.g. Bank sheet
asset
account
Telephone
1
Vehicles
2
Capital
3
Cash float
4
Insurance
5
Drawings
6
Loan
7
Sales
8
Trading stock/
9
inventory
Telephone
10
Fixed deposit
11.
Equipment
12.
Debtors
13.
Creditors
14.
Rent income
15.
REVISION TEST TOTAL: 30
MEMORANDUM

BALANCE
TYPE OF TYPE OF OWNERS INCOME / SHEET- /
No ACCOUNT
ASSET LIABILITY EQUITY EXPENSE NOMINAL
ACCOUNT
current Balance sheet
e.g. Bank
asset account
Nominal
1 Telephone expense
account
Non-
current/ Balance sheet
2 Vehicles
fixed account
asset
owners' Balance sheet
3 Capital
equity account
current Balance sheet
4 Cash float
asset account
Nominal
5 Insurance expense
account
owners' Balance sheet
6 Drawings
equity account
Long term
 liability / Balance sheet
7 Loan
non-current account
liability
Nominal
8 Sales income
account
Trading stock/ current Balance sheet
9
inventory asset account
Nominal
10 Telephone expense
account
Financial
asset / non- Balance sheet
11. Fixed deposit
current account
asset
Non-current Balance sheet
12. Equipment or fixed account
asset
current Balance sheet
13. Debtors
asset account
current Balance sheet
14. Creditors
liability account
Nominal
15. Rent income income
account