Double entry rules Chapter Objective test On 20 June 20x3 an entity pays R500 in advance for repairs on its vehicle The supplier first had to order the spare part that needs to be replaced, so the repairs would be done later On July 20x3 the supplier informed the entity that the spare part had arrived The entity took the vehicle in for repairs on July 20x3 and the work was completed on the same day With reference to the concept of Accrual accounting, explain on which date the repair expense will be recognised (6 marks) The accounting equation ASSETS = EQUITY INCOME (+) EXPENSES (-) + LIABILITIES The accounting equation Assets = Equity + Liabilities + - - + - + DR CR DR CR DR CR       The accounting equation Assets = Equity + Liabilities + - - + - + DR CR DR CR DR CR Income CR Expenses DR   The accounting process AFS (Annual financial Transaction /event - Journal (prime entry) - General ledger (accounts) - Trial balance & adjustments - statements) of: Profit and loss (P&L) Statement of financial position (SFP) Statement of changes in Equity (SCE) Cash flow statement (C/F) Notes & policies T-Account Page 83 - Date, - Name of contra account, - Amount Journal entry Page 96 - Date, - Account debited (+ F/S) - Account credited (+ F/S), - Amounts - Reason for journal (journal narration/description) Exercise Indicate the effect (DR and CR) on the accounting equation of the following transactions: 1) Owner contributes R10 000 as capital cash 2) Purchase inventory for R2 000 cash 3) Pay rent expense R5 000 cash 4) Obtain loan from Bank for R20 000 5) Pay water & electricity R1 000 cash Owner contributes R10 000 as capital cash Assets = Equity + Liabilities + - - + - + DR CR DR CR DR CR 10 000  10   000 (Equity classification: Capital) DR Dr Bank (SFP) Cr Capital (SCE) CR 10 000 10 000   Obtain loan from Bank for R20 000 Assets = Equity + Liabilities + - - + - + DR CR DR CR DR CR 20 000    20   DR Dr Bank (SFP) Cr Loan: Bank (SFP) 000 CR 20 000 20 000 Pay water & electricity R1 000 cash Assets = Equity + Liabilities + - - + - + DR CR DR CR DR CR 000  000   (Equity classification: Expense) DR CR Dr Water and electricity (P&L) 000 Cr Bank (SFP) 000   The accounting process Transaction /event Journal (prime entry) General ledger (accounts) Trial balance & adjustments AFS (Annual financial statements) of: - Profit and loss (P&L) - Statement of financial position (SFP) - Statement of changes in Equity (SCE) - Cash flow statement (C/F) - Notes & policies Account (Ledger/GL) Bank Tx1 Capital Tx4 Loan: Bank 10 000 Tx2 Trade inventories 000 Tx3 Rent expense 000 20 000 Tx5 Water & electricity 000 30 000 Balance bd Balance cf 22 000 30 000 22 000 Example 4.5 – nr On January 20.7, the owner made the property that AC Entity utilises available for the exclusive use of the entity The property was registered in the owner’s name a few days before January 20.7 The purchase price of the property was R1 200 000 (R200 000 for the land and R1 000 000 for the buildings) Example 4.5 – nr 20.7   Land (SFP) Dr 200 000 Cr   Jan   Buildings (SFP) 000   000   Capital (SFP)   000 Recognise capital     contribution by owner Assets = Liabiliti + + 200 000 = es 200 + Equity +1 200 000   Classification Capital Example 4.5 – nr On January 20.7, the owner opened a cheque account for the entity and deposited R1 800 000 in the account Example 4.5 – nr 20   Dr Bank (SFP) 800 Jan   = Liabiliti + Recognisees capital contribution the +1 800 = by +     000 Capital (SFP) Assets Cr owner 000   Equity +1 800 000 800 000 Classificati   on Capital   Example 4.5 – nr On January 20.7, furniture and equipment to the amount of R225 000 was ordered The supplier, Payable K, delivered the furniture and equipment on January 20.7 to AC Entity’s premises The invoice price is R225 000 and it was agreed with Payable K to pay the outstanding amount on 30 January 20.7 Example 4.5 – nr 20   Dr Cr Furniture and equipment (SFP) 225 Jan 000       Payable K (SFP)   225 000 Recognise furniture and     equipment received together with accompanying Assets = Liabilitie liability + Equity +225 000 = s +225 000 + Classificati on   Example 4.5 – nr Trade inventories to the amount of R20 000 was ordered on January 20.7 and it was agreed with Payable L that the outstanding amount will be paid 30 days after delivery On 25 January 20.7, Payable L delivered the trade inventories to AC Entity’s premises The invoice price is R20 000 and the invoice reflects that the amount is payable on 24 February 20.7 Example 4.5 – nr 20.7 25   Dr Trade inventories (SFP) Cr 20 000   Jan     Payable L (SFP)   20 000 Recognise trade inventories     received together with accompanying liability Assets = Liabilitie + +20 000 s = +20 000 + Equity Classification   Example 4.5 – nr On 30 January 20.7, the amount due to Payable K was paid Example 4.5 – nr 20.7 30 Payable K (SFP)   Dr 225 Jan   000     Cr Bank (SFP)   Derecognise Payable K due to settlement of debt Assets = Liabilities + - 225 = - 225 000 + 000 Equity 225 000     Classification   Homework - Prepare T-accounts for Example 4.5 [...]... the amount is payable on 24 February 20.7 Example 4. 5 – nr 4 20.7 25   Dr Trade inventories (SFP) Cr 20 000   Jan     Payable L (SFP)   20 000 Recognise trade inventories     received together with accompanying liability Assets = Liabilitie + +20 000 s = +20 000 + Equity 0 Classification   Example 4. 5 – nr 5 On 30 January 20.7, the amount due to Payable K was paid Example 4. 5 – nr 5 20.7 30 Payable... Payable K to pay the outstanding amount on 30 January 20.7 Example 4. 5 – nr 3 20   Dr Cr 7 5 Furniture and equipment (SFP) 225 Jan 000       Payable K (SFP)   225 000 Recognise furniture and     equipment received together with accompanying Assets = Liabilitie liability + Equity +225 000 = s +225 000 + 0 Classificati on   Example 4. 5 – nr 4 Trade inventories to the amount of R20 000 was ordered on 7 January... Classification Capital Example 4. 5 – nr 2 On 2 January 20.7, the owner opened a cheque account for the entity and deposited R1 800 000 in the account Example 4. 5 – nr 2 20 7 2   Dr Bank (SFP) 1 800 Jan   = Liabiliti + Recognisees capital contribution the +1 800 = 0 by +     000 Capital (SFP) Assets Cr owner 000   Equity +1 800 000 1 800 000 Classificati   on Capital   Example 4. 5 – nr 3 On 2 January 20.7,... Balance cf 22 000 30 000 22 000 Example 4. 5 – nr 1 On 2 January 20.7, the owner made the property that AC Entity utilises available for the exclusive use of the entity The property was registered in the owner’s name a few days before 2 January 20.7 The purchase price of the property was R1 200 000 (R200 000 for the land and R1 000 000 for the buildings) Example 4. 5 – nr 1 20.7 2   Land (SFP) Dr 200... The accounting process Transaction /event Journal (prime entry) General ledger (accounts) Trial balance & adjustments AFS (Annual financial statements) of: - Profit and loss (P&L) - Statement of financial position (SFP) - Statement of changes in Equity (SCE) - Cash flow statement (C/F) - Notes & policies Account (Ledger/GL) Bank Tx1 Capital Tx4 Loan: Bank 10 000 Tx2 Trade inventories 2 000 Tx3 Rent...   000     Cr Bank (SFP)   Derecognise Payable K due to settlement of debt Assets = Liabilities + - 225 = - 225 000 + 000 Equity 0 225 000     Classification   Homework - Prepare T-accounts for Example 4. 5 ... Bank Tx1 Capital Tx4 Loan: Bank 10 000 Tx2 Trade inventories 000 Tx3 Rent expense 000 20 000 Tx5 Water & electricity 000 30 000 Balance bd Balance cf 22 000 30 000 22 000 Example 4. 5 – nr On January...   Classification Capital Example 4. 5 – nr On January 20.7, the owner opened a cheque account for the entity and deposited R1 800 000 in the account Example 4. 5 – nr 20   Dr Bank (SFP) 800 Jan... The invoice price is R20 000 and the invoice reflects that the amount is payable on 24 February 20.7 Example 4. 5 – nr 20.7 25   Dr Trade inventories (SFP) Cr 20 000   Jan     Payable L (SFP)