ACCOUNTING EQUATION

BBAW 2103 ONLINE ROZLINDA YAACOB

ACCOUNTING EQUATION

Brought in cash as capital for the business Amount Asset(A) = Amount Equity(E)

(A) = (E)

ACCOUNTING EQUATION

As business grew, need more capital. Brought in further cash as capital by applying loan Amount Asset(A)=Amount Equity(E) +Liability(L) A= E+L

ACCOUNTING EQUATION

Breaking down the component of Equity Equity = Capital + Profit OR Capital Loss A = Capital +/- (Profit/Loss) + L

ACCOUNTING EQUATION

Breaking down the component of Profit Profit = Revenue Expenses

A = Capital +/- (Revenue Expenses) + L

EXAMPLE 1
1)

Transaction: En. Ali started business with RM80,000 cash Effect: Cash Account which is Asset increase Capital Account which is Equity increase

2)

3)

Accounting Equation:

ASSET
CASH + 80,000
4)

EQUITY
CAPITAL

LIABILITY

+ 80,000

A=E+L + 80,000 = 80,000 + 0

EXAMPLE 2
1)

Transaction: Sykt ABC bought motor paid RM2,000 cash and RM40,000 cheque Effect: Cash Account which is Asset decrease Bank Account which is Asset decrease Motor Account which is Asset increase

2)

3)

Accounting Equation:

ASSET
MOTOR + 42,000
4)

=
CASH

EQUITY 0

LIABILITY
0

BANK - 40,000

- 2,000

A=E+L + 42,000 40,000 2,000 = 0 + 0 0=0

EXAMPLE 3
1)

Transaction: Sykt ABC bought motor through a loan worth RM100,000 Effect: Motor Account which is Asset increase Loan Account which is Liability increase

2)

3)

Accounting Equation:

ASSET MOTOR + 100,000

A=E+L + 100,000 = 0 + 100,000 + 100,000 = 100,000

EQUITY

LIABILITY

LOAN
= +0 + 100,000

EXAMPLE 4
1)

Transaction: Sykt ABC bought motor worth of RM122,000 paying cash RM2,000 and taking up a loan of RM120,000 Effect: Motor Account which is Asset increase Cash Account which is Asset decrease Loan Account which is Liability increase

2)

3)

Accounting Equation:

ASSET

= CASH

EQUITY

LIABILITY

MOTOR
+122,000

LOAN
= 0 + 120,000

- 2,000

4)

A=E+L + 122,000 2,000 = 0 + 120,000 +120,000 = 120,000

EXAMPLE 5
1)

Transaction: Sykt ABC paid salaries RM2,000 and rent RM3,000 by cash Effect: Cash Account which is Asset decrease Salaries Account which is Expenses increase Rent Account which is Expenses increase

2)

3)

Accounting Equation: ASSET CASH = CAPITAL + EQUITY REVENUE EXPENSES SALARIES

-2,000 -

LIABILITY

RENT + 3,000 0

3,000

+ 2,000

4)

A=E+L = Capital +/- [Revenue Expenses] + L - 2,000 - 3000 = 0 +/- [0 (2,000 + 3,000)] + 0 - 5,000 = - 5,000

EXAMPLE 6
1)

Transaction: A customer paid RM6,000 cash for services rendered Effect: Cash Account which is Asset increase Services Rendered Account which is Revenue increase

2)

3)

Accounting Equation:

ASSET CASH

= CAPITAL + -

EQUITY REVENUE SERVICE RENDERED EXPENSES

LIABILITY

+ 6,000

+6,000

4)

A=E+L = Capital +/- [Revenue Expenses] + L + 6,000 = 0 +/- [6,000 (0)] + 0 + 6,000 = + 6,000

EXAMPLE 7
1)

Transaction: Cash of RM100 has been used for personal use Effect: Cash Account which is Asset decrease Drawing Account will reduce capital

2)

3)

Accounting Equation:

ASSET CASH - 100

4)

EQUITY DRAWING

LIABILITY

- 100

A=E+L - 100 = - 100 + 0 - 100 = - 100