TOPIC 3

TOPIC 3



Asset is a resource that owned or controlled by a company and will
provide a benefit in current and future periods for the business.

 A liability is something a company owes, usually a sum of money.
 Liabilities are settled over time through the transfer of money, goods, or services.

OWNER’S EQUITY

Owner’s equity is the total value of a company’s assets that belong to an
owner once the liabilities have been settled

Revenue

Revenue is money your business receives
from its normal business activities

Expenses

Expense is money you spend to run your
business.

DOUBLE ENTRY
CONCEPTS

The Rules :

The double entry system is the basis of accounting recording system which need every
business transaction to be recorded into two accounts (or more)

One account will have an amount entered as a debit and the other one account will
have an amount entered as a credit.

Further, the total amounts entered as debits must be equal to the total amounts
entered as credits.

Meeting these requirements will result in the accounting equation (Assets = Liabilities +
Owner’s Equity) being in balance at all times.

Account Name

Left Side Right Side

Debit Side Credit Side

Debit Credit

The effect of accounting entries

DEBIT CREDIT

• Increase in assets • Decrease in assets
• Increase in expense • Decrease in expense
• Decrease in liability • Increase in liability
• Decrease in equity • Increase in equity
• Decrease in income • Increase in income

Assets Account Liabilities Account Equity Account

Debit Credit Debit Credit Debit Credit
+ - - + - +

Example Of Double Entry

1. Purchase of machine by cash

Debit Machine Increase in asset
Credit
DCEaBsIhT DecreaCsRe DinITasset

2. Payment of utility bills Increase in expenses
Decrease in asset
Debit Utility Expenses
Credit Cash

3. Intereset received on bank deposit account

Debit Cash Increase in asset
Credit Finance Income Decrease in asset

LEDGER AND
T-ACCOUNTS



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What is ledger?

 A ledger is a book containing accounts in which the
classified and summarized information from the journals is
posted as debits and credits.

 It is also called the second book of entry.
 Ledger has two sides, the debit (Dr) and the credit (Cr).
 The left hand side is the debit side while the right hand side

is the credit side.
 Ledger can be devided into 2 types categories that is

subsidiary ledger and general ledger.

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