Page 34 - Book-keeping for Secondary Schools Student’s Book Form One

Book-Keeping for Secondary Schools

The question here would be, how did Resources Owned = Resources Supplied
Habibu’s business come to have these (Assets) (Capital + Liabilities)
assets? One of the possible answers is that
Habibu saved money from his previous
work and decided to invest this money What is just presented is the accounting
into his business. In this case, the amount equation in its very basic form. You can
FOR ONLINE READING ONLY
assign values to each of the items and
that Habibu saved to start the business is see how the equation will look like.
referred as capital. Another possibility Assume that the values of each item are
is that Habibu borrowed money from as presented below:
friends, relatives, banks or other financial
st
institutions to start a business. In this Habibu’s assets at 1 January 2020
case, the amount borrowed by Habibu as Item(s) TZS
debts is commonly known as liabilities. 480,000
Capital, also known as owner’s equity Shaving machines
may thus be defined as amount of Furniture 620,000
resources contributed by the owner to Fittings 216,000
start or expand a business. Assuming that Consumables (soap, creams
the business starts by owner’s resources and towels) 115,000
without any external funding, then the Cash 510,000
total assets equal the amount of capital,
in this case the accounting equation is To be able to arrive at the accounting
represented as ASSETS = CAPITAL. equation, you are firstly required to add
up all assets. The total obtained by adding
Liabilities arise from having persons up all the listed assets is TZS 1,941,000.
other than the owners of the business Secondly, you were to show the resources
provide resources to start, expand or run that are used in acquiring the assets.
the day-to-day activities of the business.
Liabilities are obligations that a business Assume that the business has not taken
has to settle by means of transferring any liabilities to meet the above costs
economic resources to other person(s) of resources, then Habibu must be the
or business (es). When a business has only source of funding. From these
resources supplied both by the owner and figures, applying the equation ASSETS
others who do not own the business, the = CAPITAL, find that Capital = TZS
accounting equation changes to be: 1,941,000, being the sum of the assets that
is, TZS (480,000 + 620,000 + 216,000 +
ASSETS = CAPITAL + LIABILITIES. 115,000 + 510,000). This means Habibu
The equation can also be changed or supplied TZS 1,941,000 to business and
written in words as follows: used that amount to start his business.

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Student’s Book Form One

Book Keeping Form 1 New 2024 FINAL.indd 26 18/10/2024 10:14