DOUBLE ENTRY BOOKKEEPING

Chapter 4

1. Capital, Asset, and Liabilities

1.1 Separate Entity concept: the owner of the business

should be considered a separate individual from its business.

2. The Accounting Equation

Assets = Liabilities + Capital

3. income, expense, and profit

3.1 Stock(inventory): an important item of expense for

most business is the cost of purchased goods or materials. Retail businesses buy goods for resale. Manufacturing businesses buy raw materials, turn into finished goods and sell to customers.
Stock or inventory is an asset but only until it is sold or consumed.
It is an expense when it is sold or consumed and is no longer an

asset because the business no longer has it.

3.2 Profit from trading: When a business makes profit it

becomes part of Capital, so it is added to the Capital.

4. The Dual Aspect of every transaction

Every transaction effect both sides, debit and crecit sides.

5. Nature and Function of Double Entry

5.1 Accounts and the Nominal Ledger (General Ledger) a

business keeps records of each asset item and liability, expense and income and owners capital