ACCOUNTING EQUATION
A=O+L
ASSETS (A) - Possessions of the business
DR
ASSET
CR
What belongs to the business.
EXAMPLES OF ASSETS

Bank






Petty cash
Trading stock
Debtors
Equipment
Business vehicles
Fixed deposit and etc.
INCREASE
DECREASE
+
-
OWNERS EQUITY (O) – Owners net investment in the business
What the owner invests in the business less any money taken out by the owner of the business.
EXAMPLES OF OWNERS EQUITY




DR
Capital
Investment returns
Profit from sale of trading stock
Retained earnings and etc.
OWNERS EQUITY/CAPITAL
DECREASE
CR
INCREASE
+
-
LIABILITIES (L) - Obligation to pay back a debt
What the business owes.
DR
LIABILITIES
CR
EXAMPLES OF LIABILITTIES




Overdraft
Creditors
Mortgage debt
Loan and etc.
DECREASE
-
INCREASE
+
EXPENSES – cost incurred for acquiring something. Affects owners equity.
What the business spends on.
DR
EXPENSES
CR
EXAMPLES






Rent
Salaries
Telephone
Advertising
Cost of goods sold
Bank charges and etc.
INCREASE
DECREASE
+
-
INCOME- money generated by the business. Affects owners equity.
EXAMPLES




Revenue
Dividend
Interest income
Operating Income and etc.
DR
INCOME
DECREASE
CR
INCREASE
-
+
DRAWINGS- money taken from the business for personal use. Affects owners equity.
e.g The owner withdrew money from current bank account for his son
DR
DRAWINGS
INCREASE
CR
DECREASE
+
-
DOUBLE ENTRY PRINCIPLE
For every debit there must be a corresponding credit
The equation must balance