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chapter 13.docx

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University of Calgary
ACCT 301

Chapter 13 The first article in this site is basically about the definition and importance of accountancy, its purpose and its role. We will now go further to discuss what the actual accounts look like and what they are based on. But before we do so, one must realize the distinction between the preparation of the final accounts and the bookkeeping process. The bookkeeping process is the steppingstone of accounting, as it is the process by which the transactions are recorded in the business, and the preparation of the final accounts begins from there. Therefore one must learn the mechanics of bookkeeping first, and this is the aim of the following article. Setting up a business Okay, suppose we are required to set up a business, the first thing that we need to do is to take a loan from the bank, or to save enough money before we actually buy any premises or whatever. Well, the money we raised through a loan or through any other way is called the Capital. The premises that we have purchased is called an Asset, the loan from the bank is called a Liability. Capital, Assets and Liabilities are the basis of accounting and they form the Accounting Equation: Assets = Capital + Liabilities So basically, an asset is what a business owns, and a liability is what a business owes (in this case to the bank), and capital is the investment of money with the intention of earning a return. Strictly, capital is the money owed to the proprietor of the bu
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