CHAPTER TWO

ACCOUNTING
EQUATION/persamaan
akaunting

BUSINESS TRANSACTIONS
(PENGURUSAN)

Financing activities

Through(melalui)
owner $ (Equity)
Non owner $ (liabilities)

Financing

Business Transactions
Investing(melabur)
activities
Buying assets /
resources (goods)
Selling resources
(Sumber) (goods)

Investing

Financing

Investing = Financing

Business Transactions
can be presented in T
format

Dr

Balance Sheet

Total Investments
= Assets

Cr

Total Financing =
Liabilities +
Equities

Investing = Financing
Or
Assets = Liabilities + Equities
(Accounting Equation)

THE ACCOUNTING EQUATION

By adding up what the accounting records say
belongs to a business and deducting what they
say the business owes, you can identify what a
business is worth according to those accounting
records.
The whole financial accounting is based upon this
very simple idea.
It is known as the accounting equation.

 It

can be explained by saying that if a business

is to be set up and start trading, it will need
resources. Just assume first that it is the
owner of the business who has supplied all of
the resources.
Resources supplied by the owner = Resources in
the business

Note that:
Resources supplied by the owner is called
capital.
Resources in the business is called assets.
Capital = Assets

 However,

people other than the owner have

supplied some of the assets. We called them
liabilities.
The accounting equation now become:
It

Capital = Assets - Liabilities

can be seen that the two sides of the equation

will have the same tools.
You can switch assets and capital around to
produce the alternate form of the accounting
equation:
Assets = Capital + Liabilities
This

can then be replaced with words describing

the resources
of the
business:
Resources:
what
they are = Resources:
who supplied them
(Assets)
(Capital +

Assets = Capital + Liabilities

The

accounting equation is also known as the

balance sheet equation. This equation forms
the basis of the whole double entry system.

We

will discuss it later.

Accounting Equation
Dr
Assets

Balance Sheet

Cr

Liabilities
+
Equities

If Assets increase L / E need to increase

to make the equation still stands
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Accounting Equation
A= L+ E

Assets

Liabilities

own

owe

CA

FA
10

CL

Equities
Owner Interest

LTL

Capital

Profit

ACCOUNTING EQUATION
ASSETS = LIABILITIES + EQUITIES
In your house what is your assets & liabilities?
ASSETS
what you own
per MASB & MFRS inflow of future economic benefit that the
company control
LIABILITIES
what you owe (someone else $)
per MASB & MFRS outflow of future economic benefit that the
company has to pay
EQUITIES
owners interest ($ owner invest in the company)
capital invested by the owner

11

Example:
Motor Vehicle
House
Bank Loan
Computer
Creditors
Salary
Telephone Charges
Hire Purchase
Land
Plant & Machinery
Shareholders Capital
Others?
12

Exercises
1). On 1/1/2011, Adam Sdn Bhd (ASB) has the following items in their business. ASB is
selling computers.
Motor Vehicle
Office Building
Factory Machine
Office Equipment
Stocks

RM30,000 (ASSETS)
& Van RM100,000 (ASSETS)
RM50,000 ( LIABILITIE) & Bank RM20,000 (LIABILITIES)
RM20,000 ( ASSETS)
RM10,000 ( ASSETS)
RM10,000 (ASSETS)

What is ASB Assets? Liabilities? Equities?

13

Exercises
2). On 1/1/2012, Milah Sdn Bhd (MSB) has the following items in their business. MSB is selling
computers.
Proton Wira
Debtors
Bank Loan
Office Equipment
Stocks

RM40,000 (ASSETS)
RM10,000 ( LIABILITIES)
RM50,000 (LIABILITIES)
RM10,000 (ASSETS)
RM10,000 (ASSETS)

& Van
& Creditors
& Bank

RM100,000(ASSET)
RM10,000 (LIABILITI)
RM20,000 (LIABILITI)

What is ZSB Assets? Liabilities? Equities?

14

Exercises
3). On 1/1/2011, Zorro Sdn Bhd (ZSB) has the following items in
their business. ZSB is selling computers.
Proton Wira
Debtors
Bank Loan
Office Equipment
Stocks

RM50,000
RM10,000
RM50,000
RM10,000
RM10,000

& Van
& Creditors
& Bank

RM100,000
RM10,000
RM20,000

What is ZSB Assets? Liabilities? Equities?

15

Exercises
4). ZSB paid their creditors in full. What effect would these
transactions have on ZSB assets, liabilities and equities?
5). ZSB bought three (3) computers on credit value at RM3,000 each.
6). ZSB purchased a computer and a printer for office used value at
RM3,000 and RM1,000 respectively.
7). ZSB bought proton Perdana value at RM100,000 using bank loan.
8). ZSB obtained bank loan for RM50,000. ZSB received cash for the
RM50,000.
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Questions
What do you notice after every transactions discussed
above? Can you pin point any thing?
Do you notice that for every transactions there are two
effects involved? What are the effects in every
transactions?
Can you give name to this scenario?

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DOUBLE ENTRY RULES

DR = CR
Debit (Dr)
Left Hand Side of T / Ledger Account
Credit (Cr)
Right Hand Side of T / Ledger Account
Note :
Every transaction must have one entry in Dr side &
corresponding entry in Cr. side - in equal amount
Each18transaction is entered twice in two or more
accounts

Recording Business Transactions

In Double Entry Way
Accounts Title (T account)

Debit Side

Credit Side

Double Entry Rules Dr = Cr

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Accounting Equation Rules

Assets

Liabilities

Cr

Dr

Assets account will have

Dr Balance as normally
Dr amount > Cr amount

Dr

Cr

L Cr Balance

Equities
Dr

Cr

E Cr Balance
20

Exercises
1). Bought RM50,000 worth of motor vehicle using
cash
Increase ? Decrease?
Debit ? Credit ?
2). Bought a house worth RM100,000 using bank loan.
Increase ? Increase?
Debit? Credit?
3). Invest RM50,000 to start your own business.
Increase ? Increase?
Debit? Credit?

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Exercises
4). Bought RM30,000 worth of personal computers for
office used on credit.
Increase ? Decrease?
Debit ? Credit ?
5). Bought RM30,000 worth of computers for stocks.
Increase ? Increase?
Debit? Credit?
6). Borrow RM500,000 from the bank to increase the
capital of the company. Bank pay cash.
Increase ? Increase?
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Debit? Credit?