Accounting Equation Assets

Double Enrty System

In accounting every single activity is known as transaction. Every transaction has two effects.
we gain something and at the same time we lose something. One of these effects is known as Debit (Dr.)
and other is called Credit (Cr.)

1 Mr. Ali (The Owner of the business) brought $ 50,000 in his business.

Capital Increase Cr.

Cash Increase Assets Increase Dr.

2 Our Business Bought Office Building of $ 30000 cash.

Building Increase Assets Increase Dr.

Cash Decrease Assets Decreased Cr.

3 Our Business borrowed $ 20000 loan from a bank.

Cash Increase assets increase Dr.

Loan Increase Liability increase Cr.

4 Paid rent for the office building $ 10000.

Rent Expense Inceased Capital Decreased Dr.

Cash Decreased Assets decreased Cr.

5 Received $ 15000 as trasnportation income.

cash Increase Assets Increase Dr.

Transp. Income Increase Capital Increase Cr.

o effects.
known as Debit (Dr.)
 Accounting Cycle It involves several steps fr

Step 1: General Journal

It is a format used in Accounting to record day to day (Choronological) activities of t

L.p. It is bascially a page no. where this transction will be recorded in ledger. Rememeber ledger is the second ste

General Journal
Date Accounts L.P. Dr.
2020
1 Cash 20 100000
Capital
(Owner brought cash in the business)

2 Furniture 4000
Cash
(Bought furniture for business)

3 Cash 200000
Building
(Sold buidling)

4 Cash 5000
Accounts Payable
(Borrowed Loan from bank)

5 Loan/Accounts Payable 4000

Cash
(Paid Liability)

6 Cash 20000
Capital
(Owner brought additional funds)

7 Cash 12000
 Rent Income
(earned income from rent)

8 Purchases 25000
Cash
(bought goods on cash)

9 Cash 15000
Sales
(sold goods)

10 Purchases 15000
Accounts Payables
(bought goods on Credit)
olves several steps from beginning till end to complete the accounting records of a business

nological) activities of the business.

meber ledger is the second step of accounting cycle.

Cr.

100000

4000

200000

5000

4000

20000
12000

25000

15000

15000
ds of a business
Step No. 2 Ledger/Accounts In ledger we combine all the accounts of t

J.P. Journal Page It is that page of journal where you find th

Ledger (Running Balance Format)

Date Cash J.P. Dr.
1 100000
2
3 200000
4 5000
5
6 20000
7 12000
8
9 15000

Salman's Capital
1
6

Furniture
2 4000

Building
3

Accounts Payable
4
5 4000
10

Rent Income
7
 Purchases
8 25000
10 15000

Sales
9
combine all the accounts of the same nature. It is the second step of accounting cycle.

e of journal where you find this ledger entry.

Cr. Balance dr dr Added

100000 dr Cr Cr Added
4000 96000 dr Dr Cr Sub
296000 dr Cr Dr Sub
301000 dr
4000 297000 dr 100000 dr
317000 dr 4000 cr
329000 dr 96000 Dr
25000 304000 dr
319000 dr

100000
20000 120000 cr

4000 Dr.

200000 200000 Cr
5000 Cr
4000 Dr
5000 5000 Cr 1000 Cr
1000 Cr
15000 16000 Cr

12000 12000 Cr
 25000 Dr
40000 Dr

15000 15000 Cr
Step # 3
Trial Balance A format which show the mathematical accuracy of both debit and credit s

Name of Business
Trail Balance
Date
S. No. Accounts Dr.
1 Cash 319000
2 Capital
3 Furniture 4000
4 Building
5 Accounts Payable
6 Rent Income
7 Purchases 40000
8 Sales

Total 363000
uracy of both debit and credit side. As both side always be equal that is why it is called Trial Balance, mean

Cr.

120000

200000
16000
12000

15000

363000
called Trial Balance, means both side balanced
Step # 4
a
Name Of the Business
Income Statement
Date

Income/Revenue $

Rent Income 12000

Sales 15000
Total Revenue/Income

Expenses
Purchases 40000
Total Expenses

Net Loss
 $

27000

40000

-13000
Step # 4
b

Name Of the Business

Balance Sheet
Date

Assest $ Liabilties & Owners Equity

Cash 319000 Liabilities
Furniture 4000 Accounts Payable
Buliding

Owners Equity
Capital 120000
Less) Net Loss 13000

Total Assets 323000 Total Liabilites & O.E.

$

16000
200000

107000

323000
Step # 4 Financial Statements financial statements tell about the financial position of the b

Types of Financial Statements

1 Income statement A statement which tells you about t
you reach at the conclusion whether yo

2 Balance Sheet Tells us about the Assest, liabilites and

state of the business on a particular da

3 Statement of Changes in Equity

4 Cashflow statement

Accounting Period Principle The time span required to complete th

One month Monthly, 3 months Quarte
 the financial position of the business from different dimensions.

ement which tells you about the Income and expenses of the business. By calculating income and expense
h at the conclusion whether your business get profit or suffer losses during the accounitng period.

bout the Assest, liabilites and Capital of the business. In simple words it tells us about the fianancial
he business on a particular date.

span required to complete the accounting cycle of the business is called Accounting Period.
th Monthly, 3 months Quartely, 6 month semiannually, 12 month Annually.
g income and expense
unitng period.

ut the fianancial

g Period.