BASIC

ACCOUNTING
EQUATION
DIRECTED BY :

ARIENAYA SYIFA’A SAAJIDAH

DENNIS HERLAMBANG
HANY NUR FAUZIYAH
ISMAH NUR HANIFAH
SAVITRI NIRMALASARI DEWI
 DEFINITION OF BASIC
ACCOUNTING EQUATION

 The basic accounting equation, also called the

balance sheet equation, represents the
relationship between the assets, liabilities,
and owner's equity of a business. It is the
foundation for the double-entry bookkeeping
system. For each transaction, the total debits equal
the total credits.
 THE FUNCTION OF BASIC
ACCOUNTING EQUATION

Basic accounting equation is useful to know

the change of the Company Intellectual property
ANY Transaction occurred. And knowing how
much has been used and spent in one accounting
period.
How Business Activities Change
the Accounting Equation
 Assets = Liabilities + Owner’s Equity
 Equation must always remain equal
 When reading transactions, Received Cash always
means cash increases; Paid Cash always means
cash decreases
 Transactions don’t always affect both sides of the
equation
 When analyzing transactions, always
 Read the transaction
 Identify the accounts
 Classify the accounts (Asset, Liability or Owner’s
Equity
Assets
 Assets are valuable resources that are owned by a
company.
 They represent probable future economic benefits and arise as
the result of past transactions or events.
 Items of value owned by the business

Assets = Liabilities + Owner Equity

Liabilities
 Liabilities are present obligations of the company.
 They are probable future sacrifices of economic benefits which
arise as the result of past transactions or events.
 Businesses of all sizes usually borrow money and purchase
merchandise on credit. Thats transaction arise liabilities.

Liabilities = Assets - Owner Equity

Owner’s Equity
 Owners' equity represents the owner’s residual equity in the
assets of the business.
 Residual equity is another name for owner’s equity.

Owners’ Equity = Assets – Liabilities

Assets = Owner’s Equity + Liabilities

Cash Equity Account Payable

Account Receivable
Drawing Salaries Payable
Supplies Bank Loan
Prepaid Unearned Revenue
Building
Motor vehicle
Equipment
 A = OE + L
TRANSACTION THAT AFFECTS BOTH
ASSET AND LIABILITY

ASSET  LIABILITY 

ASSET  LIABILITY 

TRANSACTION THAT AFFECTS BOTH

ASSET AND OWNER’S EQUITY

ASSET  OWNER’S EQUITY 

ASSET  OWNER’S EQUITY 

 A = OE + L

TRANSACTION THAT AFFECTS

ASSETS ONLY

ASSET  ASSET 

TRANSACTION THAT AFFECTS

LIABILITIES ONLY
LIABILITY  LIABILITY 
 Examples :
a) John began business with cash in hand
$5,000.
Cash $5,000 Equity $5,000
b) The firm took a bank loan of $8,000.

Cash $8,000 Bank Loan $8,000

c) Being purchase of motor vehicle from
ABC Trading for $2,000.
Motor Vehicle $2,000 Cash $2,000
 Examples :

d) Being payment of $500 to Creditor, Peter.

Cash  $500 Account Payable  $500

e) Being receipt of $3,500 in from a debtor.

Account Receivable  $3,500 Cash $3,500

 Examples :

f) Being repayment of bank loan for $1,500.

Cash  $1,500 Bank Loan  $1,500

g) Being purchase of office equipment from

Trading on credit for $780.

Office Equipment $780 A/P$780

 Examples :

h) Paid employees’ salaries $2,200

Cash  $2,200 Equity  $2,200

i) Recieved a cash payment of $1,250 for service

provided

Cash  $1,250 Equity  $1,250

CASH A/R Vehicl Office Account Bank Equity
e Equiment Payable Loan
5,000 5,000

8,000 8,000

13,000 8,000 5,000

(2,000) 2,000

11,000 2,000 8,000 5,000

(500) (500)

10,500 2,000 (500) 8,000 5,000

3,500 (3,500)

14,000 (3,500) 2,000 (500) 8,000 5,000

(1,500) (1,500)

12,500 (3,500) 2,000 (500) 6,500 5,000

780 780
 Vehicl Office Account Bank
CASH A/R Equity
e Equiment Payable Loan
12,500 (3,500) 2,000 780 280 6,500 5,000

(2,200) (2,200)

10,300 (3,500) 2,000 780 280 6,500 2,800

1,250 1,250

11,550 (3,500) 2,000 780 280 6,500 4,050

10,830 10,830
BALANCE
 THANK YOU FOR
YOUR ATTENTION.