Double Entry Bookkeeping System Case Study

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INTRODUCTION As we know that, double-entry bookkeeping system is established by Luca Pacioli. Without double-entry bookkeeping system, we cannot analyse the financial status of a business. ACCOUNTING EQUATION The foundation accounting equation is the relationship between assets, liabilities, and equity. It is a basic accounting equation used to balance all of the businesses account (Wikipedia 2017). For example, the double-entry bookkeeping system is a famous system in the accounting world. Most of the businesses using double-entry bookkeeping system in their works due to this system can make their works become smooth and quick. For an example, when a company paid for fixtures and fittings, bank loan, salaries, office equipment and purchased…show more content…
Business makes a profit when the selling price charged to the customer is higher than the cost of inventories. According to the accounting equation, equity increases when profit increases. Revenue is the income received by the business. In other words, revenues include the amount of money received by a company from the sale of goods or services (Myaccountingcourse). Examples of revenue are sales, fees earned, interest income and rents income. Expenses are the resources that have been consumed in running the business. Examples of expenses are salaries paid to employees, interest on loans for equipment and buildings, shop rental, utilities and taxes. Thus, the profit determination equation is PROFIT = REVENUE –…show more content…
Profit or loss of the business can be calculated by preparing the statement of profit or loss. The statement of financial position is used to analyse the assets, liabilities, owner equity of a business. There are 3 types of adjustment according to accruals, prepayments and non-cash. The main purpose of adjustment in accounting is to match incomes and expenses to appropriate accounting periods (Accountingexplained). Next, we have to prepare an adjusted Trial Balance and Financial Statements by posting information from the adjustment to get the latest Trial Balance and Financial Statements that can be used directly in the preparation of the statement of changes in stockholders' equity, income statement and the balance sheet (Accountingcoach). Finally, closing entries is the last step in the accounting cycle. All the general ledger need to be closed in order to start the accounting cycle for the next accounting period (Accountingcoach). USERS OF ACCOUNTING INFORMATION The users of accounting information can be divided into two, which are internal users (primary users) and external users (secondary
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