Here are simplified study notes based on Mulenga’s Statement of Financial Position (7
January 2014) and the dual aspect concept in accounting, broken down for easy
understanding and exam revision:
📘 ACCOUNTS NOTES – Double Entry & Accounting
Equation (Mulenga Example)
🧾 1. Statement of Financial Position (7 January 2014)
📊 Mulenga's Business Snapshot:
Assets Liabilities + Capital
Shop (Fixed Asset) – K30,000 Accounts Payable – K2,000
Inventory – K2,000 Capital – K19,750
Cash at Bank – K250
Accounts Receivable – K50,000
Total Assets = K82,250 Total Equity & Liabilities = K21,750
🔁 The difference in totals here shows that not all liabilities/capital are updated, but focus is on
the effect of the new transaction.
📝 2. Transaction on 7 January 2014
A debtor (customer) paid K750 by cheque.
🎯 Effect:
Cash at Bank increases → Asset ↑ → Debit
Accounts Receivable decreases → Asset ↓ → Credit
✅ Entry:
Debit: Cash at Bank K750
Credit: Accounts Receivable K750
💡 Why? You're receiving money that someone owed you. You're increasing your bank
account while decreasing the amount the customer still owes.
💡 3. Dual Aspect of Transactions (Key Concept)
1
Every transaction has two effects on the business:
o One account is Debited
o The other is Credited
This keeps the accounting equation in balance.
📐 4. Equality of the Accounting Equation
⚖️Accounting Equation:
Assets = Capital + Liabilities
The total value on both sides of the equation must always balance.
Every transaction affects two accounts:
o Sometimes on the same side of the equation
o Sometimes on opposite sides
🔄 5. Types of Changes That Maintain the Equation
Change Type Example
Increase one asset, decrease another Buy stock using cash
Increase asset, increase liability Buy goods on credit
Increase asset, increase capital Owner invests money
Decrease asset, decrease liability Pay part of what you owe
Decrease asset, decrease capital Owner withdraws money
Decrease one asset, increase another Customer pays cash (Accounts receivable ↓, Cash ↑)
✅ 6. Summary of Key Points
Double Entry = Every transaction has two sides: Debit & Credit
Debits = Credits in every transaction
Accounting Equation must stay in balance:
Assets = Capital + Liabilities
Statements of Financial Position show the business’s financial health at a specific
date
Transactions affect either both sides or the same side of the accounting equation
🧠 Memory Tip:
💬 “Every give has a take in accounting.”
If you receive something (debit), you must have given something in return (credit).
2
📘 1. Types of Transactions & Their Effects on the
Accounting Equation
Transaction Type Effect on Accounts Explanation
1. Owner pays capital ➕ Increase Asset (Bank) Increase The owner invests money into the
into bank Capital business.
2. Purchase of shop by ➖ Decrease Asset (Bank) ➕ Increase Exchange one asset (cash) for another
cheque Asset (Shop) (shop).
➕ Increase Asset (Inventory) ➕
3. Buy inventory on Business receives stock but hasn’t paid
Increase Liability (Accounts
credit yet.
Payable)
➖ Decrease Asset (Inventory) ➕
4. Sale of inventory on Business gives goods now, customer
Increase Asset (Accounts
credit pays later.
Receivable)
5. Sale of inventory for ➖ Decrease Asset (Inventory) ➕ Cash received immediately in exchange
cash or cheque Increase Asset (Bank or Cash) for goods.
6. Pay creditor ➖ Decrease Asset (Bank) ➖ Decrease
Business settles a debt.
(Accounts Payable) Liability (Payable)
7. Debtor pays amount ➕ Increase Asset (Bank) ➖ Decrease
Customer pays back what they owe.
owed (by cheque) Asset (Accounts Receivable)
📊 2. Effect on Balance Sheet Totals
Effect on Total Balance Sheet
Transaction No. Effect on Assets
Capital/Liabilities Effect
Balanced (both sides
1 ➕ ➕ Capital
increase)
2 ➖➕ (both assets) — No change (asset swap)
Balanced (both sides
3 ➕ ➕ Liability
increase)
4 ➖➕ (both assets) — No change
5 ➖➕ (both assets) — No change
6 ➖ ➖ Liability Balanced (both sides decrease)
7 ➕ ➖ (Asset reduced) No change
🧾 3. Vertical Format of the Statement of Financial
Position (Balance Sheet)
Structure:
Mulenga & Sons
3
Statement of Financial Position as at [Date]
K
Non-current assets:
Shop/Van/Machinery xx,xxx
Current assets:
Inventory xx,xxx
Accounts receivable xx,xxx
Cash at bank xx,xxx
--------------------------
Total current assets xx,xxx
Total assets (A) xx,xxx
Less: Current liabilities:
Accounts payable (xx,xxx)
----------------------------
Net assets xx,xxx
Financed by:
Capital xx,xxx
----------------------------
Total Liabilities + Capital xx,xxx
🧠 Remember:
Assets = Capital + Liabilities
The balance sheet must always balance.
✅ Example Exercise Summary
Given:
Van: K12,000
Office Furniture: K8,640
Inventory: K4,220
Receivables: K10,892
Bank: K11,722
Payables: K12,651
Solution:
a) Capital = Assets – Liabilities
Total Assets: 12,000 + 8,640 + 4,220 + 10,892 + 11,722 = K47,474
Liabilities: K12,651
Capital = 47,474 – 12,651 = K34,823
📑 b) Final Statement (Vertical Format)
4
Mulenga & Sons
Statement of Financial Position as at 10 October 2023
K
Non-current assets:
Van 12,000
Office furniture 8,640
------
20,640
Current assets:
Inventory 4,220
Accounts receivable 10,892
Cash at bank 11,722
------
26,834
Total assets 47,474
Less: Current liabilities:
Accounts payable (12,651)
------
Net assets 34,823
Financed by:
Capital 34,823
🔄 4. Double Entry System for Assets, Liabilities & Capital
Item Debit (Dr) Credit (Cr)
Assets Increase (Dr) Decrease (Cr)
Liabilities Decrease (Dr) Increase (Cr)
Capital Decrease (Dr) Increase (Cr)
Revenue/Income — Credit
Expenses Debit —
📝 Examples:
Transaction Debit Credit
Owner invests cash Bank Capital
Buy inventory on credit Inventory Accounts Payable
Sell goods on credit Accounts Receivable Sales
Pay creditor Accounts Payable Bank
Debtor pays Bank Accounts Receivable
📘 5. Ledger Accounts: "T" Format vs. Vertical Format
🧾 T-Account Example:
Bank Account
5
Dr | Cr
-------------------------|-------------------------
Cash from owner 10,000 | Paid supplier 3,000
Received from debtor 2,000|
| Balance c/f 9,000
🧾 Vertical Format Example:
BANK ACCOUNT
Date | Details | Debit (K) | Credit (K)
-------- | ------------- | --------- | -----------
1 Jan | Capital | 10,000 |
3 Jan | Sales Debtor | 2,000 |
5 Jan | Supplier | | 3,000
| Balance c/f | | 9,000
📌 6. Important Reminders
Every transaction affects two accounts → Double Entry
Debit = Credit in all journal entries
Use source documents (like receipts, invoices) to back up transactions
Use ledger accounts to track changes in individual accounts over time
