NOTRE DAME OF NEW ILOILO, INC.

A Diocesan School
NEW ILOILO, TANTANGAN, SOUTH COTABATO
Tel. No. (083) 229 – 1113
Email Address: notredamenewiloilo@gmail.com

SUBJECT: FUNDAMENTALS OF ABM 1 GRADE LEVEL: ELEVEN

QUARTER: THREE (2) WEEK: TWO

I. OBJECTIVES: At the end of the lesson, students are expected to:

1. Illustrate the accounting equation (ABM_FABM11- IIIb-c-17);
2. Perform operations involving simple cases with the use of
accounting equation (ABM_FABM11- IIIb-c-18).
II. PRE-ASSESSMENT
A – Direction: Encircle the letter of the best answer.

1. It shows the relationship between a company’s assets, liabilities, and

capital.
a. Assets b. Liabilities c. Owner’s Equity d. Accounting Equation
2.This refers to the economic resources owned by the company.
a. Assets b. Liabilities c. Owner’s Equity d. Accounting Equation
3.This refers to the property and rights owned by the business.
a. Assets b. Liabilities c. Owner’s Equity d. Accounting Equation
4.This refers to the investment of an owner.
a. Assets b. Liabilities c. Owner’s Equity d. Accounting Equation
5.These include claims of the creditors on the assets of the company.
a. Assets b. Liabilities c. Owner’s Equity d. Accounting Equation
6.This refers to the obligations to pay and debts of a company.
a. Assets b. Liabilities c. Owner’s Equity d. Accounting Equation
7.This has to show a balance in every business transaction.
a. Assets b. Liabilities c. Owner’s Equity d. Accounting Equation
8.This includes a company’s cash, supplies, and equipment.
a. Assets b. Liabilities c. Owner’s Equity d. Accounting Equation
9.This shows no changes when an owner invests additional cash in the
business.
a. Assets b. Liabilities c. Owner’s Equity d. Accounting Equation
10.This demonstrates the dual aspect of a business transaction and proves
that Debit = Credit.
a. Assets b. Liabilities c. Owner’s Equity d. Accounting Equation

Activity 1
Find the missing values.
ASSETS LIABILITIES OWNER’S EQUITY
1 250,000 150,000 100,000
2 665,000 347,000
3 234,000 434,000
4 123,000 23,000

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 NOTRE DAME OF NEW ILOILO, INC.
A Diocesan School
NEW ILOILO, TANTANGAN, SOUTH COTABATO
Tel. No. (083) 229 – 1113
Email Address: notredamenewiloilo@gmail.com
5 876,000 500,000
6 15,000 5,999
7 1,089,021.18 396,156.93
8 68,000 66% of assets
9 1/3 of owner’s equity 143,628
10 164% of liabilities 26,007

III. CONTENT/ DISCUSSION/ INFORMATION

Lesson 3 The Accounting Equation

The accounting equation formula represents the relationship between the

assets, liabilities, and owner's equity of a business. The value of a
company's assets should always equal the sum of its liabilities and owner's
equity. The underlying concept of this formula is that every asset acquired
by a company was financed either through debt (liability) or through
investment from owners (owner’s equity).
The accounting formula materializes a company's assets in terms of its
liabilities and owner’s equity. This simple formula serves as the foundation
of double-entry bookkeeping wherein there are always two account entries
made for each transaction—a debit to one account and a credit to another.
Keep reading to have a better understanding on the accounting formula
basics, its elements, and its relationship to one another.

The Elements of the Accounting Equation

1. Assets - these are economic resources owned by the company
expected for future gain. They are property and rights of value owned by
the company.

2|P age
 NOTRE DAME OF NEW ILOILO, INC.
A Diocesan School
NEW ILOILO, TANTANGAN, SOUTH COTABATO
Tel. No. (083) 229 – 1113
Email Address: notredamenewiloilo@gmail.com
Assets refer to items like cash, inventory, accounts receivable, buildings,
land, or equipment. Purchasing something with the company’s cash on
hand will not affect the accounting equation because it's just converting one
type of asset (cash) into another type of asset (inventory, equipment, or
whatever else is purchased). The accounting formula doesn't differentiate
between types of assets.
2. Liabilities - these are debts or obligations, which are amounts owed to
others. These include debts, obligations to pay, and claims of the creditors
on the.. assets of the company. Liabilities are one of three ways.. In which
a business can acquire funding.
Liabilities can include bank loans, credit card accounts, or accounts
payable (such as when a supplier offers to.. extend credit to a business).
3. Owner’s Equity - these are the total capital the.. owners have invested
in the business. These include.. the .interest of the owners on the
company; claims of… the .owners on the assets of the company; and the..
investment of the owner plus or minus the results on the.. operations of the
company.
Owner’s Equity or Capital comes from two main sources: investment of
owners and earning from the company.
Let us put into practice the accounting equation above. For example, if
Company Tibs owns Php100, 000 in assets but owes Php30, 000 to
creditors, how much would be the total claim of the owners?
Assets = Liabilities + Owner’s Equity
Php100, 000 = Php30, 000 +?
Php100, 000 = Php30, 000 + Php70, 000
Php100, 000 = Php100, 000

The equity to which owners/investors have a claim is Php70, 000. As you

can see, the accounting formula is all about balance. Any activity on the
right side is reflected on the left side.

Here are some more examples:

1. Given liabilities of Php10, 000 and the owner’s equity of Php50, 000.
Find the value of the assets.

Assets = Liabilities + Owner’s Equity

Assets = Php10, 000 + Php50, 000
Assets = Php60, 000

3|P age
 NOTRE DAME OF NEW ILOILO, INC.
A Diocesan School
NEW ILOILO, TANTANGAN, SOUTH COTABATO
Tel. No. (083) 229 – 1113
Email Address: notredamenewiloilo@gmail.com

2. Given assets of Php100, 000 and the owner’s equity of Php70, 000. Find
the value of liabilities.

Assets = Liabilities + Owner’s Equity

Liabilities = Assets - Owner’s Equity
Liabilities = Php100,000 - Php70,000
Liabilities = Php30,000

3. Given assets of Php200, 000 and liabilities of Php90, 000. Find the value
of the owner’s equity.

Assets = Liabilities + Owner’s Equity

Owner’s Equity = Assets - Liabilities
Owner’s Equity = Php200,000 - Php90,000
Owner’s Equity = Php110,000

Analyzing the Effects of Business Transactions to the Accounting

Equation
The accounting equation shows that for every debit, there must be an equal
credit. As we have already discussed, Assets, Liabilities and Owner’s
Equity are the three components of the accounting equation that make up a
company’s balance sheet. Accounting Equation demonstrates the dual
aspect of a business transaction and proves that Debit = Credit. Here is a
table to show you the effects of transactions on the accounting equation.

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 NOTRE DAME OF NEW ILOILO, INC.
A Diocesan School
NEW ILOILO, TANTANGAN, SOUTH COTABATO
Tel. No. (083) 229 – 1113
Email Address: notredamenewiloilo@gmail.com

The following details will include the amount and the account affected in
illustrating the effects on the accounting equation. Notice that the
accounting equation is always balanced in every transaction such that
assets are always equal to liabilities and owner’s equity.

5|P age
 NOTRE DAME OF NEW ILOILO, INC.
A Diocesan School
NEW ILOILO, TANTANGAN, SOUTH COTABATO
Tel. No. (083) 229 – 1113
Email Address: notredamenewiloilo@gmail.com
Activity 2. My Own Accounting Equation
Applying the accounting equation to your daily life as a student and
consumer, write your transactions made on a day to day basis and analyse
the effects of each transaction to the different accounting accounts.

IV. ASSESSMENT
Direction: Choose the corresponding answer from the word box and write it
on the space provided before each number.

_______________ 1.This refers to the obligations to pay and debts of a

company.
_______________ 2. This refers to the economic resources owned by the
company.

6|P age
 NOTRE DAME OF NEW ILOILO, INC.
A Diocesan School
NEW ILOILO, TANTANGAN, SOUTH COTABATO
Tel. No. (083) 229 – 1113
Email Address: notredamenewiloilo@gmail.com
_______________ 3. This has to show a balance in every business
transaction.
_______________ 4. This demonstrates the dual aspect of a business
transaction and proves that Debit = Credit.
_______________ 5. This refers to the property and rights owned by the
business.
_______________ 6. This refers to the investment of an owner.
_______________ 7. These include claims of the creditors on the assets of
the company.
_______________ 8. This includes a company’s cash, supplies, and
equipment.
_______________9. It shows the relationship between a company’s
assets, liabilities, and capital.
______________ 10. This shows no changes when an owner invests
additional cash in the business.

V. FEEDBACK
____________________________________________________________
____________________________________________________________
____________________________________________________________
____________________________________________________________

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