Fundamentals in Accountancy, Business and Management (FABM) 1

Subject-Teacher: MARILOU C. MANGLINONG

Module 3: The Accounting Equation

Important Direction: Write your answers on a yellow pad, use front page always.
DO NOT FORGET to WRITE YOUR NAME, SECTION and MODULE NUMBER
ALWAYS on all pages of your answer sheet.
I. THE ACCOUNTING EQUATION

II. Learning Competencies: The learners shall be able 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

III. Learning Content

A. Overview

• The accounting equation is Assets = Liabilities + Equity

• For every transaction, the accounting equation should always be balanced.

• Assets are resources owned by the business.

• Liabilities are obligations by the business.

• Equity is the residual interest of the owner of the business. Meaning, any assets left after paying
liabilities is the right of the owner of the business.

• There are four elements that affect equity: (1) Investment; (2) Withdrawal; (3) Revenue, and; (4)
Expenses.

B. Illustration

Accounting Equation:
Assets invested by the owner

July 1 - Paolo Reyes started a delivery service on July 1, 2013. The following transactions occurred during
the month of July. He invested PHP800,000 cash and Cars amounting to PHP200,000.

Borrowings from the bank

July 2 – Reyes borrowed PHP100,000 cash from PNB for use in his business.

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Asset purchased for cash

July 7 – Bought tables and chairs from Orocan and paid PHP45,000 cash

Assets purchased on account

July 15 – Various equipment were purchased on account from Fortune for PHP55,000

Cash withdrawal by the owner

July 18 – Reyes made a cash withdrawal of PHP5,000 for personal use

Payment of liability

July 20 – The account due to Fortune was paid in cash

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