Fundamentals of accounting
Fundamentals of accounting

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Fundamentals of accounting

Summary of Week 3

The three concepts that form the basis of double-entry accounting are the business entity concept, the accounting equation and the duality concept. The business entity concept means that a business is separate from the owner(s) of the business. The accounting equation for any business states that Assets = Capital + Liabilities. The duality concept means that every transaction has two effects.

The basic principle of double-entry accounting is for every transaction recorded there should be a debit entry and a credit entry in the relevant T-accounts according to the following double-entry rules:

Table 3 Rules of double entry revisited

Account name Effect of transaction Debit Credit
Asset Increase Debit
Decrease Credit
Liability Increase Credit
Decrease Debit
Capital Increase Credit
Decrease Debit

You can now go to Week 4: Preparing the trial balance and the balance sheet [Tip: hold Ctrl and click a link to open it in a new tab. (Hide tip)] .

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