ACCOUNTING

EQUATION
What are the things you need to add on the stall for the business?
• What is the nature of the business?
• Who owns the things?
• Assuming your parents are the owner of that
business, how can they acquire those things
inside the stall?
• If your parent’s money is not enough, where do
you think they can get the money?
• What can you say about those things or those
assets?
ASSETS
• are a company's resources—things the
company owns. Examples of assets include
cash, accounts receivable, inventory,
prepaid insurance, investments, land,
buildings and equipment.
 LIABILITIES
• are a company's obligations—amounts the company owes.
• Examples of liabilities include notes or loans payable,
accounts payable, salaries and wages payable, interest
payable, and income taxes payable (if the company is a
regular corporation). Liabilities can be viewed in two ways:
• (1) as claims by creditors against the company's assets, and
• (2) a source—along with owner or stockholder equity—of the
company's assets.
 OWNER'S OR STOCKHOLDERS'
EQUITY
• reports the amounts invested into the company by
the owners plus the cumulative net income of the
company that has not been withdrawn or distributed
to the owners.
• the amount left over after liabilities are deducted
from assets:
• Assets - Liabilities = Owner's (or Stockholders')
Equity
.

OWNER’S
• ASSETS • LIABILITIES
EQUITY
 These three accounts have the same relationship to
each other. We call this relationship the Accounting
Equation.
 The word equation comes from the word equal. For any
equation, one side always equals another.
The equation shows that assets or properties of the
business are owing to outsiders (Liabilities) and to owner’s
(proprietor)
.

OWNER’S
• ASSETS • LIABILITIES
EQUITY

• The equation may also be expressed as:

• The equation means that out of the properties

of the business, the first to be paid must be the
debts to outsiders and any amount remaining
thereafter should go to the owner.
 Let us assume that on July 1, 1991 Orlando Reyes
engaged in business with a cash capital investment of
P100,000.00. On this date, the accounting equation is:

Assets = Liabilities + Owner’s Equity

Cash = Capital
P100,000.00 0 P100,000.00
= +
 The accounting equation could also apply to personal
situation. Suppose you buy a car for P500,000, borrow
P400,000 from the bank, and pay the rest yourself. Try
to illustrate the accounting equation.

Assets = Liabilities + Owner’s Equity

Car = Accounts Capital

Payable-Bank
P500,000.00 400,000 P100,000.00
= +
FOUR ELEMENTS OF OWNER’S EQUITY:
• Investment
• Withdrawal
• Revenue
• Expenses
 ACTIVITY
• In four groups. Review the Accounting Equation and examine
each of the transactions and perform necessary operation with the
use of Accounting Equation.
• I will ask one group to share the solution with the class. If that
group’s solution is wrong, another group will be asked to share,
and so on.
• For the group activity I will illustrate and perform the operation
for transaction No. 1 and each group will do the rest
 Transactions
• Orlando deposited P750,000 in the bank in the name of D & W
Enterprise.
ASSETS = LIABILITIES + OWNER’S
EQUITY
Cash
P750,000.00 = 0 + P750,000.00
 Transactions
• Orlando purchased land amounting to P500,000, paid in cash.
• Orlando Reyes purchased P20,000 supplies paying in the near future.
• During the month, P15,000 is paid to creditors on account.
• Received P55,000 from services rendered.
• Paid the following expenses: Salaries P10,000; Rent P5,000; Utilities
P4,000 and Miscellanous Expense P2,000
 INDIVIDUAL ACTIVITY
Using the given data accomplish the accounting equation by applying necessary
operations.
Assets Liabilities Owner’s
Equity
a. 760,000 360,000 ?
b. 860,000 ? 592,000
c. ? 108,000 760,000
d. 626,600 376,240 ?
e. ? 800,000 (100,000)