,ACCOUNTING FOR BEGINNERS
WHAT IS ACCOUNTING ?
Accounting may be defined as the recording of financial transactions (in money terms), reporting the results of such
transactions and drawing up financial statements for decision-making.
THE ACCOUNTING EQUATION
RECORDING TRANSACTIONS IN THE ACCOUNTING EQUATION
EXAMPLES:
1. The owner invested in the business by depositing R20,000 cash.
Assets = Equity. + Liabilities
+R20,000 (Bank) +R20,000 (Capital)
2. Bought inventory on credit, R3,000.
Assets. =. Equity. +. Liabilities
+R3,000 (Inventory). +R3,000 (Accounts payable/ Trade payable )
3. Paid the telephone account by cheque, R700.
Assets =. Equity +. Liabilities
-R700 (Bank) -R700 (Telephone)
4. Bought inventory by cheque, R1,500.
Assets =. Equity +. Liabilities
+ R1,500 (Inventory)
- R1,500. (Bank)
, 5. Paid the supplier R3,000 in settlement of account
Assets =. Equity. +. Liabilities
- R3,000 (Bank). - R3,000 ( Accounts payable)
6. Bought stationery by cheque, R150.
Assets =. Equity +. Liabilities
- R150 ( Bank) - R150 (Stationery)
7. The owner drew a business cheque of R2,000 for his personal use
Assets =. Equity. + Liabilities
- R2,000 (Bank). - R2,000 (Drawings)
8. The tenant paid the monthly rental to the company, R2,500.
Assets. =. Equity. +. Liabilities
+ R2,500 (Bank). + R2,500 (Rent income)
9. The owner contributed a vehicle worth R30,000 to the business.
Assets =. Equity. +. Liabilities
+ R30,000 (Vehicle). + R30,000 (Capital)
DOUBLE ENTRY AND THE BALANCE SHEET
SECTION LEARNING OUTCOME
By the end of this section you should be able to:
◦ Understand and explain the need for financial records and financial statements
◦ Understand the business entity and the dual concepts
◦ Define assets, liabilities and capital
◦ Understand and exlain the relationship between the accounting equation and double-entry and double-entry bookkeeping
◦ Record transactions in the appropriate ledger accounts using the double-entry bookkeeping system
◦ Understand a simple balance sheet in a vertical format
◦ Balance off accounts at the end of an accounting period
◦ Prepare a trial balance
ACCOUNTING RECORDS AND FINANCIAL STATEMENTS
Accounting records store information about all the financial transactions and events of a business. A small business may only
have a few financial transactions a day to record while a large, multinational business may have many thousands. This course
focuses on busines organisations but the core concepts and principles of bookkeeping also apply to non-profit organisations.
Why do all businesses need to keep accounting records ?
◦ They keep track of where money comes from and how it is spent.
◦ They are required by law.
◦ They help to keep control of goods and property owned by a business.
◦ They are used as the basis for financial statements.
WHAT IS ACCOUNTING ?
Accounting may be defined as the recording of financial transactions (in money terms), reporting the results of such
transactions and drawing up financial statements for decision-making.
THE ACCOUNTING EQUATION
RECORDING TRANSACTIONS IN THE ACCOUNTING EQUATION
EXAMPLES:
1. The owner invested in the business by depositing R20,000 cash.
Assets = Equity. + Liabilities
+R20,000 (Bank) +R20,000 (Capital)
2. Bought inventory on credit, R3,000.
Assets. =. Equity. +. Liabilities
+R3,000 (Inventory). +R3,000 (Accounts payable/ Trade payable )
3. Paid the telephone account by cheque, R700.
Assets =. Equity +. Liabilities
-R700 (Bank) -R700 (Telephone)
4. Bought inventory by cheque, R1,500.
Assets =. Equity +. Liabilities
+ R1,500 (Inventory)
- R1,500. (Bank)
, 5. Paid the supplier R3,000 in settlement of account
Assets =. Equity. +. Liabilities
- R3,000 (Bank). - R3,000 ( Accounts payable)
6. Bought stationery by cheque, R150.
Assets =. Equity +. Liabilities
- R150 ( Bank) - R150 (Stationery)
7. The owner drew a business cheque of R2,000 for his personal use
Assets =. Equity. + Liabilities
- R2,000 (Bank). - R2,000 (Drawings)
8. The tenant paid the monthly rental to the company, R2,500.
Assets. =. Equity. +. Liabilities
+ R2,500 (Bank). + R2,500 (Rent income)
9. The owner contributed a vehicle worth R30,000 to the business.
Assets =. Equity. +. Liabilities
+ R30,000 (Vehicle). + R30,000 (Capital)
DOUBLE ENTRY AND THE BALANCE SHEET
SECTION LEARNING OUTCOME
By the end of this section you should be able to:
◦ Understand and explain the need for financial records and financial statements
◦ Understand the business entity and the dual concepts
◦ Define assets, liabilities and capital
◦ Understand and exlain the relationship between the accounting equation and double-entry and double-entry bookkeeping
◦ Record transactions in the appropriate ledger accounts using the double-entry bookkeeping system
◦ Understand a simple balance sheet in a vertical format
◦ Balance off accounts at the end of an accounting period
◦ Prepare a trial balance
ACCOUNTING RECORDS AND FINANCIAL STATEMENTS
Accounting records store information about all the financial transactions and events of a business. A small business may only
have a few financial transactions a day to record while a large, multinational business may have many thousands. This course
focuses on busines organisations but the core concepts and principles of bookkeeping also apply to non-profit organisations.
Why do all businesses need to keep accounting records ?
◦ They keep track of where money comes from and how it is spent.
◦ They are required by law.
◦ They help to keep control of goods and property owned by a business.
◦ They are used as the basis for financial statements.
