THE ACCOUNTING EQUATION, ELEMENTS OF FINANCIAL STATEMENTS, BOOK OF ACCOUNTS,

FINANCIAL TRANSACTION WORKSHEET

THE ACCOUNTING EQUATION
ASSET = LIABILITIES + CAPITAL

An asset is a resource controlled by the entity because of past events and from which future economic
benefits are expected to flow to the entity.

Current Assets Noncurrent Assets

Cash Long-term receivables
Account Receivables Land
Office Supplies Building
Merchandise Inventory Equipment and Machineries
Prepayments covering less than 1 year Furniture and Fixtures
Investments in equity securities
Intangible assets
Investment properties
Prepayments extending more than 1 year

A liability is a present obligation of the entity arising from past events, that settlement of which is expected
to result in an outflow from the entity of resources embodying economic benefits.
Current Liabilities Noncurrent Liabilities
Accounts Payable Long-term Notes Payable
Short-term Notes Payable Bonds Payable
Unearned Revenue Deferred Tax Liabilities
Accruals Other long-term liabilities
Other short-term liabilities

An equity is the residual interest in the assets of the entity after deducting all its liabilities.
Sole Proprietorship Partnership Corporation
Owner’s Equity Partner’s Equity Share Capital
Owner’s Drawings Partner’s Drawings Share Premium
Retained Earnings

Revenue
Service Companies Merchandising and Manufacturing Companies
Service Revenue Sales Revenue

Expenses
Salaries Representation
Rent Transportation
Utilities Communication
Depreciation Gas and Oil
Repairs and Maintenance

RESOURCES = CLAIMS
RESOURCES = CLAIMS of creditors + CLAIMS of the owner
ASSET = LIABILITIES + CAPITAL
LIABILITIES = ASSET – CAPITAL
CAPITAL = ASSET – LIABILITIES

Problem 1: Answer the following questions.

1. Company A has assets of P1,000,000 and has liabilities of 400,000. How much is the capital?
2. Company B has liabilities of P500,000 and capital of 700,000. How much are the assets?
3. Company C has assets of 4,000,000 and capital of 2,800,000. How much are the liabilities?
CHARTS OF ACCOUNTS
A chart of accounts is a listing of the name of the accounts that a company has identified and made
available for recording transactions.
ASSETS
101 Cash
102 Accounts Receivable
103 Office Supplies
104 Prepaid Rent
105A Automobile
105B Accumulated Depreciation – Automobile
106A Office Equipment
106B Accumulated Depreciation – Office Equipment
107A Furniture and Fixtures
107B Accumulated Depreciation – Furniture and Fixtures

LIABILITIES
201 Accounts Payable
202 Notes Payable
203 Unearned Local Travel Fees
204 Unearned International Travel Fees
205 Interest Payable

CAPITAL
301 Owner’s Capital
302 Owner’s Drawing
303 Profit or Loss Summary

REVENUE
401 Local Travel Fees Earned
402 International Travel Fees Earned
403 Travel Assistance Fees Earned

EXPENSES

501 Salaries
502 Utilities
503 Rent
504 Repairs and Maintenance
505 Organization
506 Office Supplies
507 Interest
508 Depreciation – Automobile
509 Depreciation – Office Equipment
510 Depreciation – Furniture and Fixtures
511 Gas and Oil

BOOKS OF ACCOUNTS
General Journals
A book of account where all business transactions are recorded. It is also called the Book of Original Entry.
General Ledger
A book of account where all transactions are classified based on their account titles. It is also called the
Book of Final Entry
Special Journals
Designed for transactions that are repetitive and recurring, in which the use of a general journal would be
inefficient.
Subsidiary Ledgers
Ledgers that support the main general ledger account
and Palawan, international Asian destinations such as South Korea, Japan, Thailand, Singapore, and
Hong Kong, and other travel services such as VISA assistance and flight booking assistance.
Transactions of the company on its first month of operations (April) are as follows:
Transactio
n Date Transaction
Number
Miss Yoon Se-Ri invested P6,000,000 to open “Landing on You Travel
1 April 1 Services Company.” Five (5) employees were initially hired for the travel
services team with two (2) drivers.
Paid pre-operating expenses for permit and licenses to start operations,
P250,000 cash payment. Bank borrowing was approved with a note of promise
2 April 2
to pay, P100,000 payable in one year with 12% interest upon repayment of the
principal amount.
Purchased two (2) units of a shuttle 15-seater van amounting to P1,600,000
3 April 4
per vehicle, on account.
Purchased ten (10) computer equipment sets for operational purposes,
4 April 6
P30,000 per unit, cash payment made.
Purchased office supplies amounting to P50,000 and paid rent in advance
5 April 7
covering 6 months’ equivalent rent, P150,000.
Purchased furniture and fixtures such as tables, chairs, cabinets, and sofa set
6 April 8 for guests and clients, package of P600,000, P200,000 paid in cash, balance
on account.
Started operations through rendering travel services to customers with the
following details:
Destination: Tara na sa Batanes 3 days 2 nights
7 April 9
Number of persons: 10 persons
Price per person: P7,316
Payment terms: Cash payment
8 April 11 Paid the amount of one of the two shuttle vans purchased on April 4.
9 April 15 Paid salaries of employees, total of P95,000 in cash.
Rendered travel services to customers with the following details:
Destination: Wonderful Seoul 5 days 4 nights + Gyeonggi-do Day Tour
10 April 18 Number of persons: 5 persons
Price per person: P38,888
Payment terms: Payable in one month (on account)
11 April 19 Paid P7,000 for minor repairs of automobile, cash payment.
Received advanced payment for the following travels:
Destination: Splendid Cebu 4 days 3 nights, May 3-6
Number of persons: 8 persons
Price per person: P6,454
Payment terms: Advanced payment
12 April 23
Destination: Japan, Japan, Sagot Sa Kasiyahan 5 days 4 nights, April 25-30
Number of persons: 10 persons
Price per person: P63,800
Payment terms: Advanced payment
Received payment from three (3) customers of the Wonderful Seoul 5 days 4
13 April 25
nights + Gyeonggi-do Day Tour who went to South Korea on April 18.
The owner, Miss Yoon Se-Ri, had an emergency and has withdrawn P30,000
14 April 29
cash for personal use.
15 April 30 Paid the following: salaries, P95,000, utilities, P12,000, gas and oil, P10,000.