Accounting Equation PDF

ACCOUNTING EQUATION TRUE OR FALSE 1. Accounting equation has two (2) sides. 2. Asset is equal to the total of liabilities and owner's equity. 3. Assets, liabilities, and owner’s equity are the components of the accounting equation. 4. Assets are the resources borrowed by the owner. 5. If the busine...

ACCOUNTING EQUATION TRUE OR FALSE 1. Accounting equation has two (2) sides. 2. Asset is equal to the total of liabilities and owner's equity. 3. Assets, liabilities, and owner’s equity are the components of the accounting equation. 4. Assets are the resources borrowed by the owner. 5. If the business has liabilities it has obligations. TRUE OR FALSE 6. There are three (3) elements that affect equity account. 7. Investments affect the owner's equity account. 8. Assets and liabilities increase when the business purchases supplies on account. 9. There is an increase in liability when you buy equipment on account. 10. If there is Php 500,000.00 worth of assets and Php 200,000.00 worth of liabilities, then there is Php 300,000.00 worth of owner's equity. COMPLETE THE TABLE ASSETS LIABILITIES OWNER’s EQUITY 1 ? Php 100,000.00 Php 50,000.00 2 Php 230,000.00 ? Php 200,000.00 3 Php 109,000.00 Php 9,000.00 ? 4 Php 650,000.00 ? Php 500,000.00 5 ? Php 90,000.00 Php 700,000.00 COMPLETE THE TABLE ASSETS LIABILITIES OWNER’s EQUITY 6 Php 456,000.00 Php 67,000.00 ? 7 Php 2,716,217.00 ? Php 1,729,000.00 8 Php 729,879.00 Php 167,000.00 ? 9 ? Php 123,456.00 Php 789,100.00 10 Php 15,676.00 ? Php 13,780.00 ACCOUNTING EQUATION The accounting equation is composed of asset, liabilities, and owner's equity. The asset is the sum of liabilities and owner's equity, while liability is the difference after the owner’s equity is deducted to asset. Equity is the money that is bought by owners of the company for running the business. There is also an extended accounting equation where revenue and expenses are added. ACCOUNTING EQUATION Asset is the sum of liabilities and owner's equity. A = L +OE THREE MAJOR ACCOUNTS 1. Assets are the items that a company owns that can provide future economic benefit. Assets are valuable resources controlled by the company. Examples of assets are cash, supplies, accounts receivable, and more. THREE MAJOR ACCOUNTS The accounting equation consists of three (3) major accounts: 2. Liabilities are the financial obligation of a company that results in the company’s future sacrifices of economic benefits to other businesses. Some of its examples are loans and accounts payable. THREE MAJOR ACCOUNTS The accounting equation consists of three (3) major accounts: 3. Equity is the money that is bought by owners of the company for running the business. It is the residual interest of the owners which means any asset left after paying liabilities is the right of the owner of the business. FOUR ELEMENTS THAT AFFECT EQUITY: a. Investment is an asset or item acquired with the goal of generating income or appreciation. b. Withdrawal occurs when funds are removed from an account for personal use. c. Revenue is the total amount of income generated by the sale of goods or services related to the company’s primary operations. d. Expenses is the cost of operations that a company incurs to generate revenue. TRANSACTIONS AFFECTING FINANCIAL POSITION Increase in Assets = Increase in Owner’s Equity Example: Calma started his new business by depositing Php 350,000.00 in a bank account in the name of Calma Graphics Design at Masa Bank. ASSETS LIABILITY OWNER’S EQUITY ↑ ↑ TRANSACTIONS AFFECTING FINANCIAL POSITION Increase in Assets = Increase in Liabilities Example: Calma acquired computer equipment by issuing a Php 40,000.00 note payable to Microsoft Office Systems. The note is due in six months. ASSETS LIABILITY OWNER’S EQUITY ↑ ↑ TRANSACTIONS AFFECTING FINANCIAL POSITION Increase in one Asset = Decrease in another Asset Example: Calma paid Php 10,000.00 to El Grande Suites for rent on the office studio for the months of June, July, and August. ASSETS LIABILITY OWNER’S EQUITY ↑↓ TRANSACTIONS AFFECTING FINANCIAL POSITION Decrease in Assets = Decrease in Liabilities Example: Calma partially paid Php 15,000.00 for the purchase of computer supplies on account. ASSETS LIABILITY OWNER’S EQUITY ↓ ↓ TRANSACTIONS AFFECTING FINANCIAL POSITION Decrease in Assets = Decrease in Owner’s Equity Example: Calma paid Php 5,000.00 to Bills Express for the semi-monthly utilities. ASSETS LIABILITY OWNER’S EQUITY ↓ ↓ TRANSACTIONS AFFECTING FINANCIAL POSITION Increase in Liabilities = Decrease in Owner’s Equity Example: Yola Company billed Calma for Php 25,000.00 for the ads. Calma will pay next month. ASSETS LIABILITY OWNER’S EQUITY ↑ ↓ TRANSACTIONS AFFECTING FINANCIAL POSITION ASSETS INVESTED BY THE OWNER July 1 – Sandy Dela Cruz started a catering service on July 1, 2020. She invested Php 800,000.00 cash and car amounting to Php 200,000.00 which both happened in the month of July. ASSETS LIABILITY OWNER’S EQUITY (+) Cash (+) Dela Cruz, Capital Php 800,000.00 Php 1,000,000.00 (+) Car Php 200,000.00 TRANSACTIONS AFFECTING FINANCIAL POSITION BORROWINGS FROM THE BANK July 2 – Sandy Dela Cruz borrowed Php 100,000.00 cash from Matagumpay Bank for her business. ASSETS LIABILITY OWNER’S EQUITY (+) Cash (+) Loans Payable Php 100,000.00 Php 100,000.00 TRANSACTIONS AFFECTING FINANCIAL POSITION THE ASSET PURCHASED FOR CASH July 7 – Sandy bought tables and chairs from Matibay Furnitures and paid Php 45,000.00 cash. ASSETS LIABILITY OWNER’S EQUITY (-) Cash Php 45,000.00 (+) Furniture Php 45,000.00 TRANSACTIONS AFFECTING FINANCIAL POSITION ASSETS PURCHASED ON ACCOUNT July 15 – Various equipment were purchased on account from Masigasig Trucking Services for Php 55,000.00. ASSETS LIABILITY OWNER’S EQUITY (+) Equipment (+) Accounts Payable Php 55,000.00 Php 55,000.00 TRANSACTIONS AFFECTING FINANCIAL POSITION CASH WITHDRAWAL BY THE OWNER July 18 – Sandy Dela Cruz made a withdrawal of Php 5,000 for her personal use. ASSETS LIABILITY OWNER’S EQUITY (-) Cash (-) Dela Cruz, Drawings Php 5,000.00 Php 5,000.00 TRANSACTIONS AFFECTING FINANCIAL POSITION PAYMENT OF LIABILITY July 20 – The account due to Masigasig Trucking Services was paid in cash. ASSETS LIABILITY OWNER’S EQUITY (-) Cash (-) Accounts Payable Php 55,000.00 Php 55,000.00  The table summarizes the effects of these transactions on the accounting equation: DATE ASSETS July CASH CAR FURNITURE EQUIPMENT 1 ₱ 800,000.00 ₱ 200,000.00 2 ₱ 100,000.00 7 (₱ 45,000.00) ₱ 45,000.00 15 ₱ 55,000.00 18 (₱ 5,000.00) 20 (₱ 55,000.00) BALANCES ₱ 795,000.00 ₱ 200,000.00 ₱ 45,000.00 ₱ 55,000.00 TOTAL ₱ 1,095,000.00  The table summarizes the effects of these transactions on the accounting equation: DATE LIABILITIES OWNER’S EQUITY Loans Payable Accounts Payable Dela Cruz, Capital Other Account Title July 1 ₱ 1,000,000.00 2 ₱ 100,000.00 7 15 ₱ 55,000.00 18 (₱ 5,000.00) Dela Cruz. Drawings 20 (₱ 55,000.00) BALANCES ₱ 100,000.00 ₱ 0.00 ₱ 995,000.00 TOTAL ₱ 1,095,000.00 TRANSACTIONS AFFECTING FINANCIAL POSITION RECEIVED CASH FOR REVENUE EARNED July 21 – Sandy Dela Cruz’s catering services was hired and Php 15,000.00 cash was received from the customers. ASSETS LIABILITY OWNER’S EQUITY (+) Cash (+) Service Revenue Php 15,000.00 Php 15,000.00 TRANSACTIONS AFFECTING FINANCIAL POSITION PAID CASH FOR EXPENSES INCURRED July 22 – Gas and oil worth Php 500.00, and car repairs worth Php 1,000.00 were paid in a cash transaction. ASSETS LIABILITY OWNER’S EQUITY (-) Cash (-) Gas and Oil Php 1,500.00 Php 500.00 (-) Repair Expense Php 1,000.00 TRANSACTIONS AFFECTING FINANCIAL POSITION REVENUE RENDERED ON ACCOUNT July 24 – Dela Cruz’s catering service was hired again by a customer but this time, the customer was not able to pay Dela Cruz on that day. Instead, she made a promise to pay Php 16,000.00 on July 31 and Aug. 15. ASSETS LIABILITY OWNER’S EQUITY (+) Accounts (+) Service Revenue Receivable Php 16,000.00 Php 16,000.00 TRANSACTIONS AFFECTING FINANCIAL POSITION PAID FOR EXPENSES INCURRED July 25 – Dela Cruz paid Php 500.00 for the telephone bill. ASSETS LIABILITY OWNER’S EQUITY (-) Cash (-) Telephone Expense Php 500.00 Php 500.00 TRANSACTIONS AFFECTING FINANCIAL POSITION REVENUE EARNED WITH A DOWN PAYMENT, BALANCE ON THE ACCOUNT July 27 – Another customer hired the catering service of Dela Cruz and received a bill amounting to Php 20,000.00 and 50% of it was collected. ASSETS LIABILITY OWNER’S EQUITY (+) Cash (+) Service Revenue Php 10,000.00 Php 20,000.00 (+) Accounts Receivable Php 10,000.00 TRANSACTIONS AFFECTING FINANCIAL POSITION CUSTOMER’S ACCOUNT COLLECTED IN CASH July 30 – The customer on July 24 paid 50% of his account in cash. ASSETS LIABILITY OWNER’S EQUITY (+) Cash Php 8,000.00 (-) Accounts Receivable Php 8,000.00 TRANSACTIONS AFFECTING FINANCIAL POSITION PAID CASH FOR EXPENSES INCURRED July 31 – Sandy Dela Cruz paid Php 10,000.00 for rental of office space, and salaries of Php 9,000.00. ASSETS LIABILITY OWNER’S EQUITY (-) Cash (-) Salaries Expense Php 19,000.00 Php 9,000.00 (-) Rent Expense Php 10,000.00 The table summarizes the effects of these transactions on the accounting equation: The table summarizes the effects of these transactions on the accounting equation: