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When one item in the equation increases, an upward arrow will be used .
When one item decreases, a downward arrow will be used .
For example:
Assets denotes a decrease in an asset.
Liabilities denotes an increase in a liability.
Transaction 1: receive cash from the owner
In this transaction, the business acquires an and must note
The equation remains in balance because an addition to the left-hand side is exactly matched by
an addition to the right-hand side.
Transaction 2: buy a vehicle for cash
In this transaction, the business records . (the vehicle) but
(cash).
(See Chapter 5, Section 5.2 for further examples.)
Next, work through Chapter 5, Section 5.3 Transactions of Dr Lees medical practice.
Financial Accounting
Transactions of Dr Lees medical practice for the month of October: effect on accounting equation
Date Business transactions of the entity
(Nature of the entity: medical practice)
Amount A L = OI
Financial Accounting
Financial Accounting
Spreadsheet analysing transactions into the elements of the accounting equation
A L = OI
Date Business transactions of the entity
(Nature of the entity: medical
practice)
Cash
and
Bank
Receivables Inventory Fixed
assets
Liabilities Capital
contributed
Revenue Expenses
Financial Accounting
Financial Accounting
Statement of cash flows for the month of October Year 20xx
Net outflow for investing activities
Profit and loss account for the month of October Year 20xx
Financial Accounting
Statement of financial position (balance sheet) at 31 October Year 20xx
Accounting
equation
Debit entries in a ledger
account
Credit entries in a ledger
account
Left-hand side of the equation
Transaction Aspects of the
transaction
Debit entry in Credit entry in
(See Chapter 5 for the full table)
Illustration: Dr Lees medical practice
Oct 1 Dr Lee provided the practice with cash, £50,000.
Two aspects:
Financial Accounting
Oct 2 The entity acquires medical equipment for cash, £30,000.
Two aspects
acquisition of an asset (medical equipment)
Analysis of debit and credit aspect of each transaction of the medical
practice
Date Business transactions of medical
practice
Amount
Financial Accounting
Ledger accounts required to record these transactions are as follows:
Enter the first transaction for Dr Lees medical practice.
L1 Cash
Date Particulars Page Debit Credit Balance
L2 Ownership interest
Date Particulars Page Debit Credit Balance
Financial Accounting
L2 Ownership interest
Date Particulars Page Debit Credit Balance
L3 Medical equipment and office furniture
Date Particulars Page Debit Credit Balance
L4 Office supplies company
Date Particulars Page Debit Credit Balance
L5 Rent
Date Particulars Page Debit Credit Balance
L6 Wages
Date Particulars Page Debit Credit Balance
L7 Patients fees
Date Particulars Page Debit Credit Balance
Financial Accounting
L8 Inventory (stock) of medical supplies
Date Particulars Page Debit Credit Balance
L9 P. Jones
Date Particulars Page Debit Credit Balance
L10 Electricity
Date Particulars Page Debit Credit Balance
L11 Mrs West
Date Particulars Page Debit Credit Balance
L12 Mr East
Date Particulars Page Debit Credit Balance
L13 Depreciation
Date Particulars Page Debit Credit Balance
L14 Expense of medical supplies
Date Particulars Page Debit Credit Balance
Financial Accounting
At periodic intervals, it may be considered necessary for a number of reasons to check the
accuracy of the entries made in ledger accounts. For instance, the omission of an entry on the
debit side of a customers ledger account for goods sold on credit terms could result in a failure
to issue reminders for payment of an amount owed to the business.
In the ledger accounts shown in this example, the balances have been kept as running totals. A
Trial balance at 31 October for Dr Lees medical practice
Ledger account title
