The Accounting Equations & Double-Entry Rules

PEA-RLS

Dr-by nature items
P-Purchases
E-Expenses
A-assets

Cr-by nature items
R-Revenues
L-liabilities
S-sales revenue

Examples of:
A-assets

1) Fixed Assets (FA) = Assets that last for more than one accounting year(usually 1year), Furniture and Fittings , Machine, Premises (Buildings) , Vehicles , Equipment

2) Current Assets (CA) = Assets that last for less than one accounting year , closing stock , Debtors , cash at bank , cash on hand , accrued(owing) revenue , prepaid expenses

L-liabilities

1) Long-term-liabilities= Liabilities that takes more than one accounting year to be paid off by business, Mortgages , loans

2) Current liabilities = Liabilities that takes less than one accounting year to be paid off by business, Creditors , bank overdraft , accrued expenses

R-revenue = Amount of money received by business from business activities, rent revenue , decrease in doubtful debts , discount received , commission received

E-expenses = Amount of money spent for business use , repairs and maintenance , Insurance , Interest , advertising , bad debts , provision for doubtful debts , carriage outwards , wages

RULES

When PEA increases the action required is 'DR' ,when PEA decreases' CR'

Opposite for RLS, When RLS increases the action required is 'CR' when RLS decreases' DR'

*Owners Equity= CAPITAL+NET PROFIT-DRAWINGS

ASSETS= OWNERS EQUITY + LIABILITIES