The accounting system

Revise The accounting system for Accounting 9706 (AS Level) — revision notes and instant AI marking.

📖 Revision notes · preview

Cambridge International AS & A Level Accounting 9706

The Accounting System

The big idea: Every transaction is recorded twice, once as a debit and once as a credit, so the books always balance and the accounting equation always holds. A small set of concepts decides how each item is measured, and the same rules apply whether the books are kept by hand or on a computer.

Summary — What This Chapter Covers

Double entry: every transaction has an equal debit and credit entry in two (or more) ledger accounts.
The accounting equation: assets = liabilities + capital. Every transaction keeps it in balance.
Transactions are first listed in the books of prime entry: sales, sales returns, purchases and purchases returns journals, the cash book and the general journal.
Totals are posted to ledger accounts, which are balanced and listed in a trial balance.
Keeping full accounting records costs time and money but gives control and reliable information.
Twelve accounting concepts underpin financial statements, from business entity to substance over form.
Computerised systems are faster and more accurate but need training, cost money and must be protected.

1. Double Entry and the Accounting Equation

Syllabus 1.2.1 · AS Level · Papers 1 & 2

Dr = Cr, and A = L + C

Each transaction affects at least two accounts. The account that receives value is debited; the account that gives value is credited. Increases in assets and expenses (and drawings) are debits; increases in liabilities, capital and income are credits.

Type of account	Increase	Decrease	Normal balance
Asset	Debit	Credit	Debit
Expense	Debit	Credit	Debit
Drawings	Debit	Credit	Debit
Liability	Credit	Debit	Credit
Capital	Credit	Debit	Credit
Income	Credit	Debit	Credit

The accounting equation Assets = Liabilities + Capital and Capital = Opening capital + Profit − Drawings

Worked example

Nadia Farah starts a business in March 2026. Show the effect of each transaction on assets, liabilities and capital.

Effect on assets = liabilities + capital
Transaction	Assets $	Liabilities $	Capital $
Nadia pays $20,000 of her own money into a business bank account	+20,000	–	+20,000
Buys goods for resale on credit from Ziad Supplies, $4,500	+4,500	+4,500	–
Buys equipment and pays by bank, $6,000	no change	–	–
Sells goods that cost $2,000 on credit to Omar for $3,200	+1,200	–	+1,200
Pays rent of $900 by bank	(900)	–	(900)
Pays Ziad Supplies $2,500 by bank	(2,500)	(2,500)	–
Takes $600 from the bank for personal use	(600)	–	(600)
Totals after all transactions	21,700	2,000	19,700

The sale for $3,200 removes inventory of $2,000 and adds a trade receivable of $3,200, so assets rise by $1,200, which is the profit and so increases capital. After all seven transactions assets of $21,700 = liabilities $2,000 + capital $19,700.

Practice Question 1

A business has assets of $84,000 and liabilities of $23,500. During the year the owner made a profit of $15,200 and took drawings of $9,800. Opening capital was $55,300. Check whether the closing figures are consistent.

2. Books of Prime Entry

Syllabus 1.2.1 · AS Level · Papers 1 & 2

Where each transaction is first recorded

3. Ledger Accounts and the Trial Balance

Syllabus 1.2.1 · AS Level · Papers 1 & 2

Post, balance, list

balance c/d

Bank account
Dr Date	Details	$	Cr Date	Details	$
2026 Mar 1	Capital	20,000	Mar 3	Equipment	6,000

🔓 Read the full The accounting system note → You're seeing the preview · sign in to read it all

Also in the full note

Is the effort worth it?
The twelve concepts in the syllabus
Benefits, drawbacks and data security

What's inside

📖 Revision notes 🎯 Learn mode ✦ AI flashcards ✓ Instant AI marking 🧊 3D explorers 🧪 Experiments & simulations 📈 Progress tracking

📄 Practise The accounting system with Accounting 9706 past papers Every paper with its mark scheme — answer online, marked instantly. Open →

Read the full The accounting system notes free

That's the preview — create a free account to read the rest, plus flashcards and practice questions with instant AI marking. No credit card.

Unlock the full notes free →

The accounting system