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Module 2 - Classification of Accounts

The document outlines the classification of accounts in accounting, categorizing them into assets, liabilities, and owners' equity. It explains the accounting principles related to these classifications and provides steps for analyzing transactions according to the accounting equation. Additionally, it introduces the expanded accounting equation, emphasizing its importance for accounting studies.

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8 views2 pages

Module 2 - Classification of Accounts

The document outlines the classification of accounts in accounting, categorizing them into assets, liabilities, and owners' equity. It explains the accounting principles related to these classifications and provides steps for analyzing transactions according to the accounting equation. Additionally, it introduces the expanded accounting equation, emphasizing its importance for accounting studies.

Uploaded by

paulmoulongo9
Copyright
© © All Rights Reserved
We take content rights seriously. If you suspect this is your content, claim it here.
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MODULE 2:

THE ACCOUNTING EQUATION

CLASSIFICATION OF ACCOUNTS

ASSETS
Fixed assets Financial assets Current assets
Land and buildings Fixed Trading stock
Equipment deposits/Investments
Vehicles Bank
Cash float
Petty cash
Savings account
Accrued income (still to be
dealt with)
Prepaid expenses (still to be
dealt with)
Consumable stores on hand
(still to be dealt with)

LIABILITIES
Non-current liabilities Current liabilities
Loans (> 12 months)
Bank overdraft
Loans (< 12 months)
Accrued expenses (still to be dealt with)
Income received in advance (still to be dealt
with)

OWNERS EQUITY
Drawings Capital

Expenses Income
Cost of sales Sales
Rent expense Current income
Salaries and wages Rent income
Stationery Commission received
Rates Interest on current bank account
Insurance Interest on savings account
Water and electricity Interest on fixed deposit
Advertising
Bank charges
Telephone
Repairs
Packing material
Interest on bank overdraft
Donations
Interest on loan

4
Accounting: Preparation for Grade 10
ACCOUNTING PRINCIPLES

Dr ASSETS Cr Dr LIABILITIES Cr

Balance b/d X Balance b/d X

+ - - +

Dr OWNERS EQUITY Cr

Balance b/d X

- +

(Expenses decrease Owners Equity) (Income increases Owners Equity)

Steps when analysing transactions according to the Accounting Equation

1. Identify the accounts


2. Classify the accounts
3. Analyse the effect on the accounting equation by applying the Accounting principles.

The expanded accounting equation

Drawings + Income Expenses

Therefore Assets = (Capital Drawings + Income Expenses) + Liabilities OR


Assets + Drawings + Expenses = Capital + Income + Liabilities

This expanded equation is very important for your studies in Accounting. It is important that you
understand this formula.

5
Accounting: Preparation for Grade 10

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