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Does anyone understand any of these topics? As I am honestly so confused. And so stressed, this is my first ever acca exam and i am just stuck on this chapter
Everything ties back to the accounting equation- Assets = Liabilities + Equity
Assets (what an entity owns)
Liabilities (what an entity owes)
Equity (owner’s interest)
Income (revenue)
Expenses (costs)
Assets increase (debit entry) asset decrease (credit entry)
Liability increase (credit entry) Liability decrease (debit entry)
Equity increase (credit entry) Equity decrease (debit entry)
Income/ revenue (credit)
Expenses/costs (debit)
To be continued.
The double entry system ensures the accounting equation balances.
Let’s say a man called Brian decides to start a gardening business. This will need accounting records for this entity that are separate from Brian’s personal accounts. The entity is distinct.
Let’s say he starts by putting his own money into a tin that will be used for expenses connected with this gardening business.
He starts by putting £100 into this tin.
The following double entry will be needed
Debit £100 cash Credit £100 Capital (Capital introduction)
He buys a £40 push lawnmower. The following double entry will be needed-
Debit £40 Equipment (Asset increase) Credit £40 Cash (asset decrease)
He cuts someone’s lawn for £25. The following double entry will be needed-
Debit: Cash £25 (Asset increases)
Credit: Revenue £25 (Equity increases as a result of this income)
To be continued.
The double entry system ensures the accounting equation balances.
Let’s say a man called Brian decides to start a gardening business. This will need accounting records for this entity that are separate from Brian’s personal accounts. The entity is distinct.
Let’s say he starts by putting his own money into a tin that will be used for expenses connected with this gardening business.
He starts by putting £100 into this tin.
The following double entry will be needed
Debit £100 cash Credit £100 Capital (Capital introduction)
He buys a £40 push lawnmower. The following double entry will be needed-
Credit £40 Equipment (Asset increase) Debit £40 Cash (asset decrease)
He cuts someone’s lawn for £25. The following double entry will be needed-
Debit: Cash £25 (Asset increases)
Credit: Revenue £25 (Equity increases as a result of this income)
To be continued.
He buys advertisement in the local newspaper for £20
Debit £20 advertisement (expense)
Credit £20 cash (asset decrease)
He opens a business bank account with £10. Money from tin.
Debit £10 bank (asset increase
Credit £10 cash( asset decrease)
Does gardening work for a local business and agrees they can pay him at end of month. Agreed price £100
Debit £100 Receivables (asset increase)
Credit £100 Revenue (equity increase)
To be continued
Decides to inject more of his money into the business via business bank account(£500)-
Debit £500 bank (asset increase)
Credit £500 Capital (Equity increase)
Buys £100 of gardening tools with business debit card
Debit £100 gardening tools (asset increase)
Credit £100 bank (asset decrease)
Does gardening for customer. Customer pays £50 by bank transfer-
Debit £50 bank (asset increase)
Credit Revenue (Equity increase)
To be continued
He takes out £20 for his own personal use-
Debit £20 Drawings (Equity decrease)
Credit £20 Bank (Asset decrease)
Receives £100 from local business that he agreed he would let pay at end of the month-
Debit £100 bank (Asset increase)
Credit £100 receivables (Asset decrease)
Decides to incorporate his business. Pays £50 to companies house as incorporation fee-
Debit £50 (Expense)
Credit £50 Bank (Asset decrease)
Pays £10 from tin into bank account. This is to represent ten £1 shares as part of incorporation-
Debit £10 Bank (Asset increase)
Credit £10 Cash (Asset decrease)
Also further double entry-
Debit Capital (Equity decrease)
Credit Share Capital (Equity increase)
A lot is about identifying one part of the double entry and then thinking what corresponding entry must be given first double entry. An Asset increase or decrease is often the starting point. If not either an expense or revenue is the starting point.
In terms of tutoring, I am not a tutor. I am happy to help you out with any questions you have on this site.
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