Slide English for Accounting 1_ Tiếng Anh Chuyên Ngành Kế Toán 1

Tiếng Anh Chuyên Ngành Kế Toán 1_ Đại học Mở After carefully studying this lesson, you should be able to: 1. understand the nature of ‘the accounting equation’ 2. appreciate the basic contents of a balance sheet 3. recognise the need for recording transactions through doubleentry form 4. record some basic transactions in doubleentry form

LESSON 1: THE ACCOUNTING EQUATION AND TRANSACTIONS THROUGH ‘DOUBLE ENTRY’

After carefully studying this lesson, you should be able to:

1 understand the nature of ‘the accounting equation’

2 appreciate the basic contents of a balance sheet

3 recognise the need for recording transactions through double-entry form

4 record some basic transactions in double-entry form

I THE ACCOUNTING EQUATION

I.1 The resources of a business

To run your business you will need to have resources You may start with cash only and use that to purchase other resources Alternatively, you may put into the business various assets which privately you already own Thus you may put into the business not only cash but also a motor vehicle and some office furniture The resources of the business are termed ‘assets’

At the start it can be said that

Assets of the business = Assets provided by the owner

Remember that here the concern is with book-keeping for your (or any other) business, as distinct from your personal, domestic matters ‘Assets provided

by the owner’ is given the term ‘capital’

So for the business

Assets = Capital

I.2 The accounting equation

If, initially, you put into your business the three suggested ‘assets’ you might then show the following:

Office furniture 600

Motor vehicle 4,800 = Capital 6,000

Cash at bank 600

This is what is termed the “accounting equation” The two sides will always

be equal to one another Assets cannot exist in a business unless some person(s) has committed to it money (or other resources) amounting to the same total sum In a sense, the business is responsible to the owner(s) for the amount of the capital

In practice, people other than the owner may lend money to the business The money lent from other people is called “Loan” The ‘equation’ could now appear like this:

Office furniture 600 Capital 6,000

Motor vehicle 4,800 Loan from T Wells 1,000

Cash at bank 1,600

Any amounts owing to persons other than the owner are given the term

‘liabilities’

The equation now reads:

Assets £7,000 = Capital £6,000 + Liability £1,000 Remember to keep clearly in mind the equation:

Assets = Capital + Liabilities

I.3 The Balance sheet

The equations shown above are a form of ‘financial statement’ termed the

balance sheet The previous statement might appear as follows:

L Wang Balance sheet at 1 September Year 5

Office furniture 600 Capital 6,000

Motor vehicle 4,800 Loan from T Wells 1,000

Cash at bank 1,600

Note the important word ‘at’ in the heading The balance sheet is likened to a

snapshot photograph of the business, at a given moment in time

The activities of the business will involve ‘transactions’, e.g the selling of goods,

and it is helpful if you trace the effect which these might have upon the balance sheet

II TRANSACTIONS THROUGH ‘DOUBLE ENTRY’

II.1 Format of T-account

The practice you are going to adopt has long been in use It divides each page of the ‘ledger’ into two sides, T-type Ledger accounts use the following format:

Account name

Debit (Dr)

Date Details £

Credit (Cr) Date Details £

II.2 Double-entry rules

You will soon become aware that the terms debit and credit have a special meaning in book-keeping The rules for double-entry are:

Transaction effect Double-entry rule

Alternatively, it may be viewed like this:

Asset account

Increases +

Decreases

-

Liabilities

Decreases

-

Increases +

Capital

Decreases

-

Increases

+

Each of these represents a “T” account This two-sided account layout has long been used to apply and show double-entry book-keeping

Account A1

Dr entry

Account B1

Cr entry

Examples:

(i) Suppose that James Meredith sets up a business on 1 May Year 3 by

placing £5,000 into a new business bank account

Transaction effect Book-keeping action

Increase of asset bank debit the bank account Increase of capital credit the capital account

The initial transaction will then be shown as follows:

Bank

Date Details £

Year 3

May 1 Capital 5,000

Capital

Date Details £ Year 3

May 1 Bank 5,000

Note: the ‘details’ (capital, bank) cross refers to the other account You should

always follow this rule

(ii) On 3 May Year 3, James Meredith bought office furniture, paying by

cheque £ 350

Transaction effect Book-keeping action

Decrease of asset bank credit the bank account Increase of asset office furniture debit office furniture account

Bank

May 3 Office furniture 350

Office Furniture

(iii) On 9 May Year 3, James Meredith bought goods on credit £180 from

Rendell Supplies

Transaction effect Book-keeping action

Increase in liability – creditor:Rendell Supplies credit Rendell Supplies

Goods

May 9 Rendell Supplies 180

Rendell Supplies

(iv) On 23 May Year 3, James Meredith paid by cheque £80 for the amount

owing to Rendell Supplies

Transaction effect Book-keeping action

account

Decrease in liability from creditor: Rendell Supplies debit Rendell Supplies

Bank

May 23 Rendell Supplies 80

Rendell Supplies

May 23 Bank 80

(v) On 16 May Year 3, sold £270 goods for cash

Transaction effect Book-keeping action

account

Goods

May 16 Cash 270

Cash

The above transaction is recorded into accounts separately In practice, we can combine all the transactions into the accounts as follows:

Bank

May 1 Capital 5,000 May 3 Office furniture 350

May 23 Rendell Supplies 80

Capital

May 1 Bank 5,000

Office Furniture

Goods

May 9 Rendell Supplies 180 May 16 Cash 270

Rendell Supplies

Cash

In a firm’s actual accounts, each account would be shown on a separate page in order to record several transactions together For your purposes, you normally need to put several accounts on one page

SUMARY

In this lesson, you learn 2 main parts: The accounting equation & Rules for double-entry

- Do the exercises after the lesson in your book to practise what you have just learnt

- Do the enhancement exercises on line for more understanding The lessons are marked automatically including careful explanations

I hope you will be successful!

GLOSSARY

double-entry rules (n) Nguyên t ắ c đị nh kho ả n kép

motor vehicle (n) Ph ươ ng ti ệ n v ậ n t ả i

office furniture (n) N ộ i th ấ t v ă n phòng