SACRED HEART OF JESUS MONTESSORI SCHOOL

J.R. Borja Extension, Gusa, Cagayan de Oro City

Montessori-Based Learning
Learning Instructional Packets (LIPs)

OFFLINE-PICK-UP

Accounting ( 1 hour/week)
First Quarter

Week-3
Basic Principles of Accounting -2
 Debit and Credit
 The Basic Accounting System

Teacher: Liezl A. Deloso

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SACRED HEART OF JESUS MONTESSORI SCHOOL
J.R. Borja Extension, Gusa, Cagayan de Oro City

Montessori-Based Learning
 Learning Instructional Packets (LIPs)
Accounting
S.Y 2021-2022_September 18, 2021

Name: ________________________________________________ Date submitted: ________________

Grade & Section: ______________________________________ Teacher: _______________________
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Content Standard:
• The students will understand the debit and credit and the basic accounting equation.

Performance Standard:
• The students can explain debit and credit and the basic accounting equation.

I. LEARNING COMPETENCY
• The students will be able to describe debit and credit and the basic accounting equation.

Objectives:
1. Identify debit and credit transactions.
2. Give an example(s) of the basic accounting equation.

II. LEARNING CONTENT

Lesson 1:
 Debit and Credit
 The Basic Accounting Equation

Materials:
1. LIPs

References:
1. K to 12 Curriculum Guide
2. Accounting
By: Atty. Graciano B. Neri, Jr.
Second Edition
3. Accounting for Non-Accountants
By: Michael P. Cañares, CPA
2018 Edition

III. LESSON PRESENTATION

Account – is an accounting device used in summarizing the changes in assets, liabilities and proprietorship
caused by business transactions, expressed in terms of DEBIT and CREDIT.
Debit and Credit are two terms commonly used to indicate the manner in which a transaction is to be recorded in
the accounts of a business, whether there is to be an increase or a decrease in the said account.

An entry on the left side of an account is called a DEBIT while an entry on the right side of an account is called a
CREDIT.
The placements and effects of a debit and credit entry in an account may be summarized as follows:

Account

Entry on the left side – DEBIT Entry on the right side – CREDIT

- Increase in asset. - Decrease asset.

- Increase in expense. - Decrease expense.

 - Decrease liability. - Increase liability.

- Decrease proprietorship. - Increase Proprietorship.

A debit is commonly abbreviated as dr in an accounting transaction, while a credit is abbreviated as cr in the

transaction.

The Basic Accounting Equation

When a person decides to have a business of his own, the first step in starting the business is to start a
bookkeeping system to find out how much the business is worth. This is very important because the business is treated as
an entity or person distinct and separate from the owner. In other words, the assets and liabilities must be segregated from
the personal assets and liabilities of the owner.

In our previously lesson we learned that the double entry system of bookkeeping is founded on the principle of
equilibrium or equation. It is based upon the theory that every business transaction represents an exchange of value for
value. The values that are exchanged and affected by business transactions are the Assets, Liabilities and Owners’
Equity.

The properties known as assets is equal to the ownership, known as proprietorship or capital. This is
expressed in the following accounting equation:

ASSETS = PROPRIETORSHIP

However, often times, a business has to incur liabilities in order to acquire more assets. In this case, the assets are
equal to the sum of the equities of outsiders known as liabilities, and the equities of the owner, known as proprietorship or
capital, and the equation is expressed as follows:

ASSETS = LIABILITIES + PROPRIETORSHIP

The equation has two elements which equally divide the entity into two parts. The left side, known as the debit
side, represents what the company owns (assets). These are resources that the entity controls in order to attain future
benefits. And on the other hand, the right side known as credit side, represents what the entity owes to its creditors
(liabilities) and the owners (equity/capital).

Double entry bookkeeping is the ingenious method whereby this equilibrium or equation is always maintained.

ASSETS = LIABILITIES + OWNER’S EQUITY (proprietorship, capital)

There should always be a dual effect in the equation to preserve the accounting identity. Such identity must be
maintained throughout the whole process of accounting the transactions.

Illustration of the Accounting Equation:

1. Ms. Santos invests P 20,000 in cash to start a jewelry repair shop and has no debts, the equation to express the
financial condition will be:

Assets = Liabilities + Owner’s Equity

Cash P 20,000 = 0 + P 20,000 (Capital-Ms. Santos)

P 20,000 = P 20,000

Take note of the dual effect of transaction # 1, the invested cash of P 20,000 is recorded in
the assets side while the owner’s equity side is denoted by increase in its capital.

2. Ms. Santos invests P 20,000 in cash to start a jewelry repair shop and has a debt of P 8,000. (Assuming, she
bought new furniture on credit, payable within 1 month.) The equation to express the financial condition will be:

Assets = Liabilities + Owner’s Equity

Cash P 20,000 P 8,000 + P 20,000
Furniture 8,000
P 28,000 P 28,000
 In simple terms, purchasing through credit means through a payable or in Filipino, utang.
Notice that the transaction above increases the liabilities portion of the equation by P 8,000. It represents a claim of the
creditor to Ms. Santos.

CORRESPONDINGLY, the incurred payable enables Ms. Santos to earn new assets in the form of furniture,
which will be used for the business as they give repair services to its customers.

3. Ms. Santos invests P 20,000 in cash to start jewelry repair shop and bought new furniture worth P 8,000 in
cash. The accounting equation will be:

Assets = Liabilities + Owner’s Equity

Cash P 12,000 0 + P 20,000

Furniture 8,000 _____________________________
P 20,000 P 20,000

In this transaction, the amount of assets did not change at all. Comparing to transaction # 2,
wherein both sides of the equation were affected, this one has merely a transfer of accounts from cash to furniture. As
such, the right side of the equation remains constant since it was not affected at all by the transactions.

* Transactions of a business brings about changes in the values of individual items. Remember that the two
sides of the equation should always be balanced. Hence, what an entity owns should always equal to what it owes to
its creditors(liabilities) and to its owners (equity).