Cambridge O level Accounting 7707 Introduction to Accounting Business Entity Concept Business point of view Accounting Equation Assets Capital/ Equity Liabilities Double Entry System Dual Effect Concept

1. Introduction to Accounting
Sanjaya Jayasundara
B.Sc.(Finance) Sp.
University of Sri Jayewardenepura,
ICASL Finalist,
Investment Advisor, International School Teache

2. Cambridge O Level Accounting 7707 syllabus for 2020, 2021 and 2022.
1 The fundamentals of accounting
1.1 The purpose of accounting
• understand and explain the difference between book-keeping and accounting
• state the purposes of measuring business profit and loss
• explain the role of accounting in providing information for monitoring progress and decision-making.
1.2 The accounting equation
• explain the meaning of assets, liabilities and owner’s equity
• explain and apply the accounting equation.
2 Sources and recording of data
2.1 The double entry system of book-keeping
• outline the double entry system of book-keeping
• process accounting data using the double entry system
• prepare ledger accounts
• post transactions to the ledger accounts
• balance ledger accounts as required and make transfers to financial statements
• interpret ledger accounts and their balances
• recognise the division of the ledger into the sales ledger, the purchases ledger and the nominal
(general)
ledger.
Sanjaya Jayasundara Accounting

5. Introduction to Accounting
01)Introduction
02) Difference between Accounting and Book-
keeping
03) Resources of a business (Assets) ,Capital,
Liabilities
04) Accounting/Business entity concept
05) Accounting equation and its components
06) Recording transaction in the accounting equation
07) Double Entry System
Sanjaya Jayasundara Accounting

6. Accounting can be defined as a subject that tries to fulfill the information
requirement of stakeholders of any business. Accounting has been called as
the language of business. Current Accounting subject is a result of an
evolution of thousands years. Basically accounting information is submitted
through the financial reports of the business. Trading profit and loss account
(Income Statement) and Balance Sheet are the basic financial statements of a
business.
Accounting is a practical phenomenon and provides the discipline for
effective use of scarce resources around the business environment.
Sanjaya Jayasundara Accounting
Introduction

7. Accounting is the process of identifying, measuring and communicating
economic information to permit informed judgment and decisions by the
users of the information.
Accounting began because people needed to:
* record business transactions,
* know if they were being financially successful, and
•know how much they owned and how much they owed.
It is known to have existed in one form or another since at least 3,500 BC
(records exist which indicate its use at that time in Mesopotamia). There is
also considerable evidence of accounting being practiced in ancient times in
Egypt, China, Greece, and Rome.
Sanjaya Jayasundara Accounting

8. However, it was only when Paciloi wrote about it in 1494 or, to be more
precise, wrote about a branch of accounting called, ‘bookkeeping’ that
accounting began to be standardised and recognised as a process or
procedure.
Sanjaya Jayasundara Accounting

9. Scope of Accounting
Accounting Process
Accounting
Inputs
(Transactions)
Accounting
Outputs
(Final
Accounts)Source
Documents
Prime Entry
Books
Ledger
Trial Balance

10. Difference between Accounting and Bookkeeping
In the simplest of terms, bookkeeping is responsible for the
recording of financial transactions whereas accounting is
responsible for interpreting, classifying, analyzing, reporting,
and summarizing the financial
data. Bookkeeping and accounting may appear to be the same
profession to an untrained eye.

11. Accounting/Business Entity Concept
This concept shows that an organization (business) is different from
it’s owner/s. It is regarded as a separate person.
Sanjaya Jayasundara Accounting
Business Owner / Owners

12. Accounting Equation and its components.
Accounting Equation and its components.
Accounting equation shows two variables.
01) Assets
02) Liabilities
Assets = Liabilities
Owners Equity + External Liabilities
(Capital) (Liabilities)
Sanjaya Jayasundara Accounting
Assets = Capital + Liabilities

13. Assets (Resources of a business )
All the things used for economic activities in a business are called economic
resources. (resources owned by a business.)
Ex:- Land, Building, Stocks, Cash
Capital
Total value of resources supplied by the owner/s of the business.
Liabilities
Total amount of assets supplied by other parties.
Ex:- Bank Loan, Creditors, Bank overdraft
Sanjaya Jayasundara Accounting

14. Components of Accounting Equation.
Assets  The total economic resources of a business can be divided into current &
non-current Assets.
Current Assets Subject to change within 12 months or less than that.
e.g. :- Cash in hand/Stock
Non- Current Assets non subject to change within 12 months.
e.g. :- Buildings/ Lands
Liabilities  Funds invested by external parties can be divided in to current & non
current liabilities.
Current liabilities  Group of obligations that have to be repaid within 12
months.
e.g. :- Creditors / Bank over drafts.
Non current liabilities  Group of obligations that can be repaid in more
than 12 months.
e.g. :- Bank Loan/ Mortgage loan
Sanjaya Jayasundara Accounting

15. Basic features of accounts
01) Name of the account
02) Debit Side (left side)
03) Credit Side (right side)
Types of Accounts
Sanjaya Jayasundara Accounting
Types of Accounts Examples
01) Assets Accounts Building account, Cash account
02) Liabilities Accounts Bank loan account, creditors account
03) Capital Accounts Capital account, Drawings account
04) Expenses Accounts Salary account, Rent account
05) Income accounts Sales account, Rent received account.

16. Recording transactions in the accounting equation.
Example :-
Following transactions took place in Gayani’s business.
01) Gayani started by investing $ 50 000
02) Purchased a computer $ 40 000
03) Obtained a bank loan $ 50 000
04) Selling a stock worth $ 10 000
05) Deposited $ 10 000 in the bank.
06) Paid creditors $ 2000
07) Purchased stocks $ 5000
Sanjaya Jayasundara Accounting

17. Answer :-
Sanjaya Jayasundara Accounting
Assets = Capital + Liabilities
01) + 50 000
(Cash)
+ 50 000
(Capital)
02) + 40 000
(Computer)
- 40 000
( Cash)
03) + 50 000
( Cash)
+ 50 000
( Bank Loan)
04) + 10 000
(Cash)
- 10 000
(Stock)
05) + 10 000
(Bank)
- 10 000
(Cash)
06) – 2000
(Cash)
-2000
(Creditors)
07) +5000
(Stock)
- 5000
(Cash)

18. Assets = Capital + Liabilities
Profit/Loss for the period (result of the business) = Income – Expenditures
•Profit should be adjusted to the capital of the business supplied by the
owner/s.
Assets = Capital + Profit + Liabilities
Assets = Capital + (Income – Expenditures) + Liabilities
Assets = Capital + Income – Expenditures + Liabilities
Assets + Expenditures = Capital + Income + Liabilities
Sanjaya Jayasundara Accounting
Building Double Entry System

19. Assets + Expenditures = Capital + Income + Liabilities
Debit Credit
Sanjaya Jayasundara Accounting
Types of
Accounts
Normal
Balance Increase Decrease
Assets Debit Debit Credit
Expenditure Debit Debit Credit
Income Credit Credit Debit
Liabilities Credit Credit Debit
Capital Credit Credit Debit

20. Thank you…
All the best…!