Accounting Knowledge for Software Engineers Part 2(Basic Accounting Transaction)

Hello all,

Thanks for waiting for the finest part of accounting. Today we will see how transactions are stored for basic accounting. In the first part of this series we know that accounting basically lays on equation..
↑ Asset = ↑ Equity + ↑ Liabilities
That means if equity and liabilities goes up then the asset must goes up.

A Transaction can be defined as an exchange of goods or services between two parties.
Now we show the step by step business accounting…

1. One man starts his business with 15,000$.
   So, the equation is..

   Asset(15,000$) =  Equity(15,000$) + Liabilities(0$)
   a. Bank(15,000$)

2. Than he borrows loan from the bank amount of 5,000$
   So, the equation is..
   

   ↑ Asset(20,000$) = Equity(15,000$) + ↑ Liabilities(5,000$)
   a. Bank(20,000$) b. Loan(5,000$)

3. Now, owners of the business want to buy some equipment of 12,000$.
   Equipment is also asset. So, the equation is..
   

   Asset(20,000$) = Equity(15,000$) + Liabilities(5,000$)
   

   In this transaction, asset are divided in two section

   a. Bank(8,000$) b. Equipment(12,000$) c. Loan(5,000$)

4. Now, owner of business needs to withdraw 500$ from business bank account.
   So, the equation is..
   

   ↓ Asset(19,500$) =  ↓Equity(14,500$) + Liabilities(5,000$)
   a. Bank(7,500$) b. Equipment(12,000$) c. Loan(5,000$)

5. Now, owner income 10,500$ from an event.
   So, the equation is..
   

   ↑ Asset(30,000$) = ↑ Equity(25,000$) + Liabilities(5,000$)
   a. Bank(18,000$) b. Equipment(12,000$) c. Loan(5,000$)

6. Now, company deeds an event of 5,000$ but the payment is still waiting.
   So, the equation is..
   

   ↑ Asset(35,000$) = ↑ Equity(30,000$) + Liabilities(5,000$)
   a. Bank(18,000$) b. Equipment(12,000$) c. Loan(5,000$) d. Debtors(5,000$) Debtors are those people who owed from your business

7. At the end of the month, the previous payment was received by the company.
   So, the equation is..
   

   Asset(35,000$) = Equity(30,000$) + Liabilities(5,000$)
   a. Bank(23,000$) b. Equipment(12,000$) c. Loan(5,000$) d. Debtors(0$)

8. Now, the company decides to hire an employee for 4,000$.
   So, The equation is..
   

   ↓ Asset(31,000$) = ↓ Equity(26,000$) + Liabilities(5,000$)
   a. Bank(19,000$) b. Equipment(12,000$) c. Loan(5,000$)

9. Now, the company receives the telephone bill of 200$ from the telephone company.
   The telephone company offered payment terms of 15 days from the date that the bill received.
   So, the equation is..
   

   ↓ Asset(31,000$) = ↓ Equity(25,800$) + ↑ Liabilities(5,200$)
   a. Bank(19,000$) b. Equipment(12,000$) c. Loan(5,000$) d. Creditors(200$)

10. Now, company pays the telephone bills.
    So, the equation is..
    

    ↓ Asset(30,800$) = Equity(25,800$) + ↓ Liabilities(5,000$)
    a. Bank(18,800$) b. Equipment(12,000$) c. Loan(5,000$) d. Creditors(0$)

11. Now, company thinks to pay some loan of 4,000$
    So, the equation is..
    

    ↓ Asset(26,800$) = Equity(25,800$) + ↓ Liabilities(1,000$)
    a. Bank(14,800$) b. Equipment(12,000$) c. Loan(1,000$) d. Creditors(0$)

This is all for today.
In the next part of this tutorial, we are going to be learn of “Double Entry System of Accounting”.
Till then bye.

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