Lecture 3 Accounting Equation
Lecture 3 Accounting Equation
Lecture 3 Accounting Equation
Equation
Mr. Atif Iftikhar
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Agenda 01 Accounting Equation
02 Basic Terminologies
03 Solved Examples
04 Challenge
Accounting equation
Users of Accounting
rules Information
Every Transaction have at least two Impact
The Statement of Financial Position (or Balance Sheet) is a list that shows three main
things about a company at a certain time:
Owner's Equity – The amount that belongs to the owners after paying for everything .
The statement of financial
position/ Balance Sheet
Solution
Example
NevTech Traders started the year with $100,000 in assets, $40,000 in
liabilities, and $60,000 in owner's equity. Below are the business
transactions that occurred during the month of January:
1. The company bought office furniture worth $10,000, paid half in cash
and the rest on credit.
2. NevTech Traders received $5,000 in cash from a customer for a service
provided.(Revenue)
3. They paid off $3,000 of their existing loan.
4. The owner invested an additional $15,000 into the business.
5. NevTech Traders made a sale of $8,000 on credit.(Revenue)
6. The company paid $2,000 in cash for utility bills.
Example
Show the effect of the following transactions upon the accounting
equation:
3 20,000 20,000
closing 108,000 40,000 18,000 130,000
4 -10,000 -10,000
closing 98,000 40,000 8,000 130,000
5 -15,000 -15,000
closing 83,000 40,000 8,000 115,000
6 -2000 -2000
closing 81,000 40,000 8,000 113,000
Total 121,000 121,000
Example
Show the effect of the following transactions upon the accounting
equation and Make Balance Sheet:
1 100,000 100,000
2 -50,000 50,000
closing 50,000 50,000 100,000
3 20,000 20,000
closing 50,000 70,000 20,000 100,000
4 35,000 -35,000
closing 85,000 35,000 20,000 100,000
5 -10,000 10,000
closing 85,000 25,000 10,000 20,000 100,000
6 -10,000 -10,000
closing 75,000 25,000 10,000 10,000 100,000
7 -25,000 -25,000
closing 50,000 25,000 10,000 10,000 75,000
8 -10,000 -10,000
closing 40,000 25,000 10,000 10,000 65,000
Total 75,000 75,000
Example
On 1st Jan 2024 the balance of Mr. Khan Bros are as follows:
Jan 1. Purchased goods for cash Rs. 4,000 subject to a trade discount of
10%.
Jan 5. sold goods for cash Rs. 12,000 costing Rs. 10,500.
Jan 15. Goods sold on credit Rs. 5000 costing Rs. 4000.
Jan 18. Goods returned by customer Rs. 2000 costing Rs. 1,900.
Jan 24. Cash received from debtor(Trade Receivables) Rs. 14,000.
Jan 30. Depreciation on machine Rs. 1,400.
Transaction Assets Liabilities + Capital
Stock of
Cash A/R Machinery Capital
Goods
25,000 22,000 17,000 70,000 134,000
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