The Accounting Equation Relationship among the assets liabilities and equity of a business Illustration 3 3 The equation must be in balance after every transaction For every Debit there must be a Credit Slide 3 14 LO 2 Explain double entry rules Double Entry System Illustration 1 Owners invest 40 000 in exchange for share capital Assets Liabilities Equity 40 000 40 000 Slide 3 15 LO 2 Explain double entry rules Double Entry System Illustration 2 Disburse 600 cash for secretarial wages Assets Liabilities Equity 600 600 expense Slide 3 16 LO 2 Explain double entry rules Double Entry System Illustration 3 Purchase office equipment priced at 5 200 giving a 10 percent promissory note in exchange Assets Liabilities Equity 5 200 5 200 Slide 3 17 LO 2 Explain double entry rules Double Entry System Illustration 4 Received 4 000 cash for services rendered Assets Liabilities Equity 4 000 4 000 revenue Slide 3 18 LO 2 Explain double entry rules Double Entry System Illustration 5 Pay off a short term liability of 7 000 Assets Liabilities Equity 7 000 7 000 Slide 3 19 LO 2 Explain double entry rules Double Entry System Illustration 6 Declared a cash dividend of 5 000 Assets Liabilities Equity 5 000 5 000 Slide 3 20 LO 2 Explain double entry rules Double Entry System Illustration 7 Convert a long term liability of 80 000 into ordinary shares Assets Liabilities Equity 80 000 80 000 Slide 3 21 LO 2 Explain double entry rules Double Entry System Illustration 8 Pay cash of 16 000 for a delivery van Assets Liabilities Equity 16 000 16 000 Note that the accounting equation equality is maintained after recording each transaction Slide 3 22 LO 2 Explain double entry rules