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M01_WOOD9188_12_SE_C01.QXD

6/17/11

9:49 AM

Page 1

part

1

INTRODUCTION TO DOUBLE
ENTRY BOOKKEEPING

Introduction
This part is concerned with the basic principles underlying the double entry system of bookkeeping.
1
2
3
4
5
6

The accounting equation and the statement of financial position The double entry system for assets, liabilities and capital
Inventory
The effect of profit or loss on capital and the double entry system for expenses and revenues
Balancing-off accounts
The trial balance

3
21
33
45
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65

M01_WOOD9188_12_SE_C01.QXD

6/17/11

9:49 AM

Page 2

M01_WOOD9188_12_SE_C01.QXD

6/17/11

9:49 AM

Page 3

chapter

1

The accounting equation and the statement of financial position
Learning objectives
After you have studied this chapter, you should be able to: l explain what accounting is about

l

briefly describe the history of accounting

l

explain the relationship between bookkeeping and accounting

l

list the main users of accounting information and what accounting information they are interested in

l

present and explain the accounting equation

l

explain the relationship between the accounting equation and the layout of the statement of financial position [balance sheet]

l

explain the meaning of the terms assets, capital, liabilities, accounts receivable
(debtors), and accounts payable (creditors)

l

describe how accounting transactions affect the items in the accounting equation

l

draw up statements of financial position after different accounting transactions have occurred

Introduction
In this chapter, you will learn: what accounting is; what led to its development into what it is today; who uses accounting information; and the relationship between the various components that, together, comprise what is known as the ‘accounting equation’.

1.1

What is accounting?
What do you think of when you read or hear the word,

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