Page 35 - Book-keeping for Secondary Schools Student’s Book Form One
P. 35
Application of the double entry system
Assuming that Habibu used own funds (iii) Revenue (income): These accounts
to finance the starting of the business, record the money earned by
except for the furniture and fittings that the business through its normal
were borrowed from Mwakapande, the operations. They include sales
accounting equation will be shown as revenue, service revenue, interest
follows: income, and rental income.
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(iv) Expenses: These accounts record
the costs incurred by the business
ASSETS = CAPITAL + LIABILITIES in generating revenue. They include
1,941,000 = 1,105,000 + 836,000 salaries, rent, utilities, office
supplies, advertising expenses, and
depreciation.
Liabilities are composed of the value of (v) Capital: This account is a fundamental
borrowed furniture (TZS 620,000), and component of a business's financial
fittings (TZS 216,000) and capital reflects accounting, and it represents the
the amounts paid by Habibu for shaving owner's equity or net worth in the
machines (TZS 480,000), consumables business. It is a part of the statement
(TZS 115,000) and cash (TZS 510,000). of financial position and reflects the
financial position of the business at
Types of Book-keeping accounts a specific point in time. The capital
Book-keeping entries are made to reflect account tracks the initial investments
effects of transactions of different made by the owner(s) and any
accounts. These accounts can be further additional contributions, as well as the
classified according to elements of cumulative profits or losses earned or
incurred by the business since its start.
financial statements which are:
The following are the key components
(i) Assets: These represent resources of the capital account:
that a business controls and use in the (a) Initial capital: This is the
operations. For example, cash, trade amount of money or assets that
receivables, inventory, equipment, the owner(s) initially invested in
the business when it was started.
buildings, and investments. It forms the foundation of the
(ii) Liabilities: These accounts represent capital account.
what a business owes to others, (b) Additional contributions: If the
including debts and obligations. owner(s) inject more money,
assets, or value into the business
For example, trade payables, loans at a later stage, these amounts
payable, accrued expenses, and are recorded as additional
mortgages. contributions to the capital
account.
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Book Keeping Form 1 New 2024 FINAL.indd 27 18/10/2024 10:14
