UNIT 3 – ACCOUNTING FOR ASSETS, LIABILITIES AND CAPITAL

The Ledger

Debit Name of Account Credit

Date Detail Folio € Date Detail Folio €

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Unit 3 – Accounting for Assets, Liabilities and Capital

Bookkeeping Entries

THE GOLDEN RULE FOR THE DOUBLE ENTRY SYSTEM

For each debit entry in the ledger accounts, there must be a

corresponding credit entry.
For each credit entry in the ledger accounts, there must be a
corresponding debit entry.

Assets to increase an asset account Dr the asset account

to decrease an asset account Cr the asset account

Liabilities to increase a liability account Cr the liability account

to decrease a liability account Dr the liability account

Capital to increase a capital account Cr the capital account

to decrease a capital account Dr the capital account

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 Accounting for Assets, Liabilities and Capital – Unit 3

The rule can also be expressed as follows:

ASSETS = LIABILITIES + CAPITAL

Dr to Cr to Dr to Cr to Dr to Cr to
increase decrease decrease increase decrease increase
the the the the the the
account account account account account account

Example 3/1

Let us consider the following transaction:

On 2nd January a motor vehicle was purchased for €12,000 by cheque.

From this we can tell that the ledger entries will be:

Dr Motor Vehicle Account by €12,000 (Increasing the asset)

Cr Bank Account by €12,000 (Decreasing the asset)

Dr Motor Vehicle Account Cr

Date Detail Folio € Date Detail Folio €
Jan 2 Bank A/c 12,000

Dr Bank Account Cr
Date Detail Folio € Date Detail Folio €
Jan 2 Motor Vehicle A/c 12,000

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Unit 3 – Accounting for Assets, Liabilities and Capital

Debit the receiver

Credit the giver

Example 3/2

On 4th January, office equipment was bought on credit for €400 from ABC
Supplies.

Ask the question “Who is receiving or what is being received?”

Our entries and accounts would therefore be:

Dr Office Equipment Account by €400 (Debit the receiver)
Cr ABC Supplies Account by €400 (Credit the giver)

Dr Office Equipment Account Cr

Date Detail Folio € Date Detail Folio €
Jan 4 ABC Supplies A/c 400

Dr ABC Supplies Account Cr

Date Detail Folio € Date Detail Folio €
Jan 4 Office Equipment A/c 400

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 Accounting for Assets, Liabilities and Capital – Unit 3

Example 3/3

Let us look at the transactions of the business of N. Mamo for March 2007

Transaction Working
Mar A business is set up. N. Dr Bank A/c (Increase the asset)
1 Mamo, the owner, paid Cr Capital A/c (Increase capital)
€20,000 into a bank account.
2 A motor van was purchased Dr Motor Van A/c (Increase the asset)
for €9,000 and paid for by Cr Bank A/c (Decrease the asset)
cheque.
3 Office equipment was bought Dr Office Equipment A/c (Increase the
from A. Borg for €1,000. asset)
Cr A. Borg A/c (Increase the liability)
4 Machinery was bought and Dr Machinery A/c (Increase the asset)
paid for by cheque €3,500. Cr Bank A/c (Decrease the asset)
5 €250 was taken from the bank Dr Cash A/c (Increase the asset)
for a cash float. Cr Bank A/c (Decrease the asset)
6 Returned damaged office Dr A. Borg A/c (Decrease the liability)
equipment from A. Borg to the Cr Office Equipment A/c (Decrease the
value of €400. asset)

The ledger accounts to show these transactions would appear as follows:

Bank Account Folio 1

2007 Folio € 2007 Folio €
Mar 1 Capital A/c 2 20,000 Mar 2 Motor Van A/c 3 9,000
Mar 4 Machinery A/c 5 3,500
Mar 5 Cash A/c 6 250

Capital Account Folio 2

2007 Folio € 2007 Folio €
Mar 1 Bank A/c 1 20,000

Motor Van Account Folio 3

2007 Folio € 2007 Folio €
Mar 2 Bank A/c 1 9,000

Office Equipment Account Folio 4

2007 Folio € 2007 Folio €
Mar 3 A. Borg A/c 7 1,000 Mar 5 A. Borg A/c 7 400

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Unit 3 – Accounting for Assets, Liabilities and Capital

Machinery Account Folio 5

2007 Folio € 2007 Folio €
Mar 4 Bank A/c 1 3,500

Cash Account Folio 6

2007 Folio € 2007 Folio €
Mar 6 Bank A/c 1 250

A. Borg Account Folio 7

2007 Folio € 2007 Folio €
Mar 6 Office Equipment A/c 4 400 Mar 3 Office Equipment A/c 4 1,000

REMINDER

To Debit an account means

to enter an amount on the Dr side of the account.
To Credit an account means
to enter an amount on the Cr side of the account.

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 Accounting for Assets, Liabilities and Capital – Unit 3

EXERCISES

Q. 3/1

Work out the double entries for the following transactions. The first one is
done for you:

Jan 1 The owner paid €15,000 into the business bank account.
Dr Bank A/c €15,000
Cr Capital A/c €15,000
Jan 3 Bought fixtures on credit from P. Galea €800.
Jan 6 Bought office furniture by cheque €225.
Jan 7 Paid P. Galea €300 on account by cheque.
Jan 15 Returned some fixtures €70 to P. Galea as they were unsuitable
for use.
Jan 25 Borrowed €1,000 from H. Lanzon who gave us the money in cash.

Q. 3/2

Work out the double entries for the following transactions. The first one is
done for you:

2013
Dec 1 The owner paid €75,000 cash into the business as capital.
Dr Cash A/c €75,000
Cr Capital A/c €75,000

3 €72,000 was transferred from the cash into the business bank
account.
5 Bought business premises by cheque €35,000.
4 Bought fixtures and fittings on credit from Lima Supplies Ltd €15,000.
7 Mario Cremona lent the business €14,500 paying it into the business
bank account.
17 Paid Lima Supplies Ltd the amount owing to them by cheque.
20 Sold fixtures and fittings that were not needed to G. Zammit on credit
€600.
25 G. Zammit paid the firm €600 in cash.

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Unit 3 – Accounting for Assets, Liabilities and Capital

Q. 3/3

B. Naudi set up business on 1st April 2009. The following transactions took
place:

2009
Apr 1 Paid €46,000 into a business bank account as capital.
2 Bought office equipment on credit from F. Galea for €700.
4 Bought shop premises paying for them by cheque €25,000.
9 Returned some faulty office equipment to F. Galea €90.

Show the ledger accounts in B. Naudi’s books.

Q. 3/4

Complete the ledger entries for the transactions shown in Q. 3/1.

Q. 3/5

Complete the ledger entries for the transactions shown in Q. 3/2.

Q. 3/6

On 1st January 2010 T. Caruana started a business using a loan from his
Uncle Thomas for €25,000 which he paid into a business bank account.

During the month of January the following transactions took place:

Jan 3 Bought shop fittings by cheque for €6,000.

4 Drew cash from bank for business use €1,000.
10 Had further loan from Uncle Thomas in cash €5,000.
15 Bought office furniture valued at €3,000 on credit from R. Sultana.
17 Returned some of the office furniture €200 to R. Sultana as it was
faulty.
20 Paid R. Sultana in cash for the amount owing to him.
28 Paid cash into bank leaving cash balance of €500.

Show these transactions in the ledger of T. Caruana.

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 Accounting for Assets, Liabilities and Capital – Unit 3

Q. 3/7

Maria Borg set up business on 1st October 2007. The following transactions
took place:

2007
Oct 1 Paid €34,000 into a business bank account as capital.
3 Bought a motor van by cheque from Bonnici Motors €12,000.
4 Bought fixtures and fittings on credit from Office Supplies Ltd €3,000.
7 Received a loan from H. Darmanin of €4,500 by cheque.
10 Took €150 out of the bank and put into the cash till.
15 Returned €400 of faulty fixtures & fittings to Office Supplies Ltd.
20 Paid Office Supplies Ltd the amount owing to them by cheque.
25 Sold fixtures and fittings that were no longer required to R. Testa on
credit €60.

You are required to enter the above transactions for the month of October
2007 in the ledger of Maria Borg.

Q. 3/8

Paul Pace set up business on 1st January 2014. The following transactions
took place:

2014
Jan 1 Paul paid €100,000 as into a business bank account as capital for
the business.
2 Bought shop premises by cheque €56,000.
4 Bought shop fittings on credit from Shop Decorators Ltd €7,000.
11 Took €600 out of the bank and put into the cash till.
15 Returned €300 of faulty shop fittings to Shop Decorators Ltd.
20 Paid Shop Decorators Ltd the amount owing to them by cheque.
25 Bought delivery van on credit from KM Motors €25,000.

You are required to enter the above transactions for the month of January
2014 in the ledger of Paul Pace.