1 Tutorial 1a The Accounting Equation J. E. Cairnes School of Business and Economics NUI Galway J. E. Cairnes School of Business & Economics ASSETS Definition: ‘an asset is owned by its owner and is worth something to its owner’ ‘any right which is of economic value to its owner’ (Gillespie & Lewis, Principles of Financial Accounting) J. E. Cairnes School of Business & Economics ASSETS Fixed Assets (>12mths): • Acquired by the business with the intention of retaining them within the business to help generate profit • Tangible assets (Land and Buildings, Equipment etc.) • Investment property (For rental income or for sale at profit) • Intangible assets (Goodwill, R&D Investment etc.) • Financial assets (Shares in other companies etc.) J. E. Cairnes School of Business & Economics
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Tutorial 1a The Accounting Equation
J. E. Cairnes School of Business and Economics NUI Galway
J. E. Cairnes School of Business & Economics
ASSETS
Definition:
‘an asset is owned by its owner and is worth something to its owner’
‘any right which is of economic value to its owner’
(Gillespie & Lewis, Principles of Financial Accounting)
J. E. Cairnes School of Business & Economics
ASSETS
Fixed Assets (>12mths): • Acquired by the business with the intention of
retaining them within the business to help generate profit
• Tangible assets (Land and Buildings, Equipment etc.)
• Investment property (For rental income or for sale at profit)
Assets – Liabilities = Capital +Revenue - Expenses - Drawings
or Debit (Dr) Credit (Cr) Assets = Capital + Expenses +Revenue + Drawings +Liabilities
J. E. Cairnes School of Business & Economics
Accounting Equation Debits & Credits
THE SUM OF ALL DEBITS (Dr’s)
= THE SUM OF ALL
CREDITS (Cr’s) J. E. Cairnes School of Business & Economics
Steps in preparing set of accounts
• 1. Record all transactions • 2. Extract a list of balances at the end of the period
(called a trial balance) • 3. Prepare a Profit and Loss account and Balance Sheet
from list of balances
J. E. Cairnes School of Business & Economics
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How do we record all transactions?
By using T Accounts with Dr. and Cr. entries for individual accounts.
J. E. Cairnes School of Business & Economics
Accounting Equation T – Accounts
ASSET Dr. Cr.
INCREASE ASSET
REDUCE ASSET
J. E. Cairnes School of Business & Economics
Accounting Equation T - Accounts
LIABILITY Dr. Cr.
INCREASE LIABILITY
REDUCE LIABILITY
J. E. Cairnes School of Business & Economics
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Accounting Equation T - Accounts
REVENUE Dr. Cr.
INCREASE REVENUE
REDUCE REVENUE
J. E. Cairnes School of Business & Economics
Accounting Equation T - Accounts
EXPENSE Dr. Cr.
INCREASE EXPENSE
REDUCE EXPENSE
J. E. Cairnes School of Business & Economics
Rules for Recording Transactions through Double Entry
J. E. Cairnes School of Business & Economics
1. Dr Assets Cr Liabilities 2. Dr Expenses Cr Gains • With Increases • The opposite applies for decreases
3. Dr Bank/Cash In Cr Bank/Cash Out
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Let’s look at some examples of Recording Transactions through Double Entry
J. E. Cairnes School of Business & Economics
• In Tutorial 1b we will look at Michael Green • In Tutorial 1c we will look at Kate Convey
• See: http://www.nuigalway.ie/cairnes/leavingcert/ for tutorials on other topics
Interested in pursuing an accounting career? Study at NUI Galway
J. E. Cairnes School of Business & Economics
• CAO Course Codes • GY201 B Comm • GY202 B Comm (International) with French • GY203 B Comm (International) with German • GY204 B Comm (International) with Spanish • GY207 B Comm (Accounting) • GY208 B Comm (Gaeilge) • For further information,