Introduction to bookkeeping and accounting
Introduction to bookkeeping and accounting

This free course is available to start right now. Review the full course description and key learning outcomes and create an account and enrol if you want a free statement of participation.

Free course

Introduction to bookkeeping and accounting

2.7 Summary

  • Accounting records are the day-to-day records of all financial transactions and other relevant financial information concerning a business.
  • Financial statements are summaries of accounting records to satisfy the relevant financial information needs of stakeholders of a business.
  • The owner(s) of a business is (are) the main stakeholder(s) in a business but there are a number of other stakeholders.
  • In accounting terms, the business is a separate entity from its owner(s) even if the business is owned by a sole trader with unlimited liability for the debts of the business.
  • In accounting terms, the business is a separate entity from its owner(s) even if the business is owned by a sole trader with unlimited liability for the debts of the business.
  • Liabilities are debts owed by the business.
  • Capital is the owner’s investment in the enterprise.
  • The vertical balance sheet of a business reflects the accounting equation: Assets – Liabilities = Capital.
  • Financial transactions have two aspects which must be equal to keep the accounting equation in balance.
  • Financial transactions are recorded by debits and credits in the ledger accounts (also known as T-accounts).
  • Assets are represented by debit balances while liabilities and capital are represented by credit balances.
  • The following rules apply to asset, liability and capital accounts.
Figure 20
  • To calculate the balance in an asset account we calculate the excess of debits over credits to get the net debit balance.
  • To calculate the balance in a liability or capital account we calculate the excess of credits over debits to get the net credit balance
  • The balance carried down figure within an asset account is always on the credit side of the account and is brought down as a debit balance.
  • The balance carried down figure within a liability or capital account is always on the debit side of the account and is brought down as a credit balance.
B190_1

Take your learning further

Making the decision to study can be a big step, which is why you'll want a trusted University. The Open University has nearly 50 years’ experience delivering flexible learning and 170,000 students are studying with us right now. Take a look at all Open University courses.

If you are new to university level study, find out more about the types of qualifications we offer, including our entry level Access courses and Certificates.

Not ready for University study then browse over 900 free courses on OpenLearn and sign up to our newsletter to hear about new free courses as they are released.

Every year, thousands of students decide to study with The Open University. With over 120 qualifications, we’ve got the right course for you.

Request an Open University prospectus