EXPANDED ACCOUNTING EQUATION

• A=L+E

• The AE expansion involves only the Equity

element/account. This is to enable the
preparation of the income statement and the
statement of owner’s equity
 EXPANDED EQUITY
• The expansion of the equity will entail the
creation of 3 accounts:
1. Drawings (withdrawal of investments by
proprietor)
2. Revenues
3. Expenses
 DRAWINGS
• Drawings are decreases in equity, therefore
always debits
 REVENUES
• Revenues increase equity, therefore are
always credits
 EXPENSES
• Expenses are debits to Equity, therefore
always debits
 FORMULA FOR BALANCE SHEET
• ASSETS = LIABILITIES + EQUITY

• This is the accounting equation

• Balance sheet is the mother of all accounting
financial statements
• The Income Statement is an expansion of the
equity portion of the Balance Sheet
FORMULA FOR THE INCOME STATEMENT

• NET INCOME = REVENUES – EXPENSES

• “KITA” = “BENTA” – “GASTOS”
• Also called Profit and Loss Statement
 INCOME STATEMENT
• Revenues PHP 100 also “topline”
• Expenses 75
• Net Income 25 also
“bottomline”

• Reports on the results of operations for a

period
 CHART OF ACCOUNTS
• BALANCE SHEET
Assets
• Cash
• Accounts Receivable (AR)
• Supplies
• Inventory
• Equipment
 CHART OF ACCOUNTS (continuation)

Liabilities
• Accounts Payable(AP)

Equity
• XYZ, Capital
• Drawings
CHART OF ACCOUNTS (cont’ p. 3)
INCOME STATEMENT
• Revenues
• Expenses