What is Accounting?

Tells us if a
How much the
business is
business is
making a profit
or a loss worth

How much money How much

they are owed money they owe
(Debtors) (Creditors)
 What is ‘bookkeeping’?
In the ‘old days’ there were no computers, so all the information
about a business was kept in a book. Therefore accounting is
sometimes referred to as book-keeping.
 The accounting equation

Capital = Assets - Liabilities

Everything the
The amount of Every thing the business owes
money supplied by business owns
the owner
The accounting equation

A
C + L
Assets consist of property of all kinds, such as
buildings, machinery, equipment, stock. Other assets
include debts people owe to the business.

Liabilities include amounts owed by the business for

goods and services that have not yet been paid.
Mr Black started a business and deposited £60,000 into a bank account

Assets
 Cash at bank 60,000

Capital 60,000
Mr Black buys a small shop for £32,000, paying by cheque.

Assets
Cash at bank 28,000
Shop 32,000
60,000

Capital 60,000
Mr Black buys some stock for £7,000 and agrees to pay the supplier in
two weeks. Mr Black is called a creditor

Assets
Cash at bank 28,000
Shop 32,000
Inventory 7,000
67,000

Account payable (7,000)

60,000

Capital 60,000
Mr Black sells some inventory for £600, but Mr Black will collect the
money later. This is known as a debtor

Assets
Cash at bank 28,000
Shop 32,000
Inventory 6,400
Account receivable 600

Account payable (7,000)

60,000

Capital 60,000
Mr Black sells some inventory for £400, and receives the payment
instantly.

Assets
Cash at bank 28,400
Shop 32,000
Inventory 6,000
Account receivable 600

Account payable (7,000)

60,000

Capital 60,000
Mr Black pays a cheque for £3,000 for the inventory he bought the
other week.

Assets
Cash at bank 25,400
Shop 32,000
Inventory 6,000
Account receivable 600

Account payable (4,000)

60,000

Capital 60,000
Mr Black receives payment of £200.

Assets
Cash at bank 25,600
Shop 32,000
Inventory 6,000
Account receivable 400

Account payable (4,000)

60,000

Capital 60,000
 Work Sheet

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