The Accounting

Equation and the

Double Entry System
Join me in
prayer as we start our
TOPIC 2
Just click the link
RECAP …
In 10 minutes
-Do memory recall
-Scribble key
points in Topic 1
in your
journal log.
-What are your
takeaways?
significant
learning or
insights?
Statement of Financial Position (Balance Sheet). It shows the
financial position or condition by listing its assets, liabilities and equity
(owner’s equity) of the entity as at a given date. A = L + E/OE

Statement of Financial Performance (Income

Statement). It shows the results of operations as of
What are the a given date..
Complete Set
of Financial Statement of Changes in Equity. It summarizes
the changes that occurred in owner’s equity.
Statements?
PAS1 Statement of Cash Flows. It provides information
about the cash receipts and cash payments of the entity
during a period.

Notes. It comprises a summary of the significant

accounting policies and other explanatory information.
Asset (A) a present economic resource controlled by the entity as a result
of past events. An economic resource is a right that has the potential to
produce economic benefits.
Liability (L) a present obligation of the entity to transfer an
economic resource as a result of past events.
Equity (E) the residual interest in the assets of the entity
Elements after deducting the liabilities (A-L=C)
of Financial Income/Revenue (I/R) increases in assets, or
Statements decreases in liabilities that result in increases in equity,
other than those relating to contributions from the
ALERE holders of equity claims.
Expenses (E) decreases in assets, or increases in
liabilities, that result in the decreases in equity, other
those relating to distribution to holders of equity claims.
Open FILE: T2.B Double Entry,
Accounts,
Transactions
ACCOUNT – the basic summary device of accounting.
Separate account is maintained for A-L-E-R-E
An “account” may be defined as detailed record of the
increases, decreases and balance of each A-L-E-R-E.
A T-Account is the simplest form of an ‘Account’

‘Title /name’ assigned to a

T-Account
specific Assets, Liabilities, Equity,
What is an has 3 Income/Revenue or Expenses
Account? elements
1

2 3
TRANSACTIONS

How is
transactions &
accounting
system related?
ACCOUNTING SYSTEM
An accounting system is the system used to manage
the income, expenses, and other financial activities of
a business. It is a system that is employed in a
company to organize financial information. It can be
either manual or computerized.
A business entity always
engages in various
economic activities.
An accounting event is an
economic occurrence
that causes changes
in the A-L & E/OE.

A business transaction is an accounting

event wherein there is a transfer of
something of value between 2 or more
parties in an arms’ length transaction.
 TRANSACTIONS
ACCOUNTING SYSTEM

Accounting Equation
What is an Assets = Liabilities + Equity
Accounting
Equation?
ACCOUNTING EQUATION is the most basic tool of accounting.
Assets (A) = Liabilities (L) + Equity (E)
 ACCOUNTING EQUATION: A = L + OE/E.

Relationship of A=L+E to T-Account

What is an
Accounting
Equation? Debit side Credit side

Look it’s a letter T & at the center is the = sign

that balances both sides of the Accounting
Equation.
 How does business
transaction relates
with Double Entry
System?

DOUBLE-ENTRY SYSTEM means in every business

transaction there is a DUAL EFFECTS.
In every value received in a transaction, there is a
value parted with.
 DEBIT CREDIT

An entity has to part away something of value

(ex. Cash) in order to receive something (ex. computer).
 Normal side/balance of ASSETS = To decrease an ASSETS
DEBIT or LEFT SIDE is to move to the
To increase an Asset is to opposite side > credit or
Debit (Dr) right side.

Relationship of
A=L+E
& Double Entry Debit side Credit side

To decrease a Normal side/balance of

LIABILITIES & EQUITY LIABILITIES & EQUITY
is to move to the = CREDIT or RIGHT SIDE.
opposite side > debit To Increase the L & E is to
or left side. CREDIT (CR)
 INCREASE in ASSETS DECREASE in ASSETS
= =
VALUE RECEIVED VALUE PARTED WITH

Relationship of
A=L+E
& Double Entry Debit side Credit side

DECREASE IN INCREASE in LIABILITIES

LIABILITIES & EQUITY & EQUITY
= =
VALUE RECEIVED VALUE PARTED WITH
 https://www.youtube.com/watch?v=CAVaV-96eB
k
Learn more about
the rules of debit
and credit.
Copy & paste the above
youtube link.
EQUITY account is directly affected by Income & Expenses.
Increases in Income = Increases in Equity
Increases in Expenses = Decreases in Equity
DRILL #1

#Check
up DRILLS!
Place a
in the correct
box.
TYPES
of
Business
Transactions
to
Assets (A)
Liabilities (L)
Equity or
Owner’s
Equity (OE)
 EFFECTS
of
BUSINESS
TRANSACTIONS
to Assets (A)
Liabilities (L)
Equity or
Owner’s
Equity (OE)
STEPS in TRANSACTION ANALYSIS
1. Identify the transaction from
source documents.
2. Indicate the accounts:
A – L – OE – I/R – E
3. Ascertain whether each account
is increased or decreased by the
transaction.
4. Apply the rules of debit &
credit to record its
increase or decrease.
DRILL #2

#Check
up DRILLS!
Place a
in the correct
box.
Open the file:
T2.B for
details…
 Using Drill#2, complete this Financial Transaction Worksheet.

DRILL #4
LOOK FOR at least 6 ACCOUNTING TERMS & RECALL
the CONCEPT
behind it…

GAME…
GAME…
ENJOY…
 CONGRATULATIONS!
Now you are ready to do the Unit
Exercises & Problems. Open files..
TEAMWORK: T2.01+T2.01SOL
PERSONAL TAKEAWAYS: T2.02

Opppss!
Keep writing in your ’log journal’ for
queries, concerns, etc.
VIDEO conference will focus on
Teamwork Exercises and Team’s
concerns