T H E A C C O U N T I N G E Q U AT I O N

LESSON 5
 The learners shall be able to:
LEARNING • illustrate the accounting equation
COMPETENCIES
(ABM_FABM11-IIIb-c-17);
• perform operations involving simple
cases with the use of the accounting
equation (ABM_FABM11-IIIb-c-18).
OVE RVI E W

Accounting equation is
Assets = Liabilities + Equity
 F O U R E L E M E N T S T H AT A F F E C T
E Q U I T Y:
1. Capital is the value of cash and other assets invested in the business by the
owner of the business.
2. Drawing is an account debited for assets withdrawn by the owner for personal
use from the business.
3. Income/Revenue/Gain is the increase in resources resulting from performance
of service or selling of goods.
4. Expense is the decrease in resources resulting from the operations of business.
 EFFECTS OF THE
TRANSACTION IN THE
ACCOUNTING ELEMENTS
Cash withdrawal by the owner
The following table summarizes the effects of these transactions on the accounting equation.
Received cash for revenue earned

1. July 21 – A customer hired the services of Reyes. Cash of PHP15,000 was received from the
customers.

Paid cash for expenses incurred

2. July 22 – Cash was paid for the following : gas and oil, PHP500 and car repairs, PHP1,000.

Revenue rendered on account

3. July 24 – Another customer hired the services of Reyes and promised to pay PHP16,000 on July 31.

Paid for expenses incurred

4. July 25 – Paid PHP500 for telephone bill.