Part 1
                                                      Accounting Equation

Accounting can be delineated a set of concept and techniques which are normally used to compute or determine and report of financial information of an economic unit to user of this information (Wainwright, 2012).

A basic model which is popularly known as fundamental accounting equation have been developed  by Luac pacioli in order to track  success or failure of a trading firm. The fundamental accounting equation can be delineated as the collection of assets belonging to a firm and the consequent claims to the assets of the organisation. The accounting equation is given as follows (Wainwright, 2012);

ASSETS = LIABILITIES + CAPITAL

In this case an asset refers to all economic resource of the firm. Assets in firm may include the following, debtors or account receivable, prepayments, cash, land and buildings plant machinery and equipment good will inventories legal rights. Assets represent upcoming economic benefit to the entity which controls such assets. Liabilities on the other hand refers to unsettled amounts this may include creditor, accruals and loans they represent obligations to the firm. Capital is otherwise referred to as owners’ equity. This represents the interest of the owner in the organisation (Wainwright, 2012).

The accounting equation is always in balance that is future economic benefit must be equal to the obligation of the firm and the owner’s interest, for example if individual A own a business and the assets of such business is $ 4,000 while liabilities are equal to $1,539, this his interest in the business would be equal to;

ASSETS = LIABILITIES + CAPITAL

$4,000=$1539+X Therefore, X= $2461, this represent the net worth of individual in the business.

                                                                  Part 2
Accounts

The term account refers to a master record that is usually maintained for each of the individual financial statement items. The financial items or component include assets, equity or capital, expense, revenue, liability. When accounts are collected into one account the generated account is known as general ledger.

We can classify accounting according to the financial statement that they are contained in;

Statement of financial position ;In the statement of financial position which was previously known as balance sheet, accounts can be classified as assets account, liability accounts, and capital account. Under the asset account we have the current assets account which include cash account, inventory accounts, and prepayment account, the non- current assets account, under the non-current account we have plant and machinery account, land and building account, good will account, motor vehicle account. Under the liability we have current liabilities account payable account, accruals account, deferred tax liability. In non-current liabilities, long term loans (Wainwright, 2012).

Statement of comprehensive income; Revenue accounts this records each and every income item my include rent income, investment, e. t . Expenses under this we may have following accounts rent, depreciation, advertising, transport, telephone and many other more (Wainwright, 2012).

The debit and credit rules are of recording transaction on the various accounts, for example a debit is an entry that is recorded in the left hand side of the account while the credit is recorded on the right side.

If an entry is made on debit side for, assets, expenses, dividend they indicate an increase of the item while if it is made on the liability, capital  and revenue account then this indicates a decline on the of item in the account the vice versa is true (Wainwright, 2012).

An example: assume you have two accounts on for accruals and the other prepayments as follows; imagine each of increase with$ 10 due to increase in rent and prepayment of electricity make the necessary entries.

DR           Accrual A/c                           CR                     DR                                                  CR

B/f      $1000                                 Bal       $1000

Rent   $10                                      electricity $ 10

References

Wainwright, S. (2012). Principle of accountin:Volume 1. San Diego,: Bridgepoint Education,       Inc.,.

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