APPLICATION OF THE TOPIC – ACCOUNTING EQUATION AND DOUBLE ENTRY SYSTEM

A. COMPUTATIONS – BASIC ACCOUNTING EQUATION

Instruction: Compute for the missing amounts.
ASSETS = LIABILITIES + EQUITY
1. 460,000 190,000 ?
2. 230,000 ? 70,000
3. ? 990,000 130,000
4. 1,020,000 ? 410,000
5. 820,000 580,000 ?

B. COMPUTATION – EXPANDED ACCOUNTING EQUATION

Instruction: Compute for the missing amounts.
ASSETS = LIABILITIES + EQUITY + INCOME - EXPENSES
1. 920,000 710,000 290,000 440,000 ?
2. 870,000 310,000 240,000 ? 150,000
3. 890,000 240,000 ? 600,000 190,000
4. 740,000 ? 170,000 1,900,000 1,860,000
5. ? 780,000 470,000 680,000 490,000

C. COMPUTATIONS - ACCOUNTING EQUATION

Instruction: Determine the effects of the transactions or events described below on the basic accounting equation.

Example: You invested P100 cash from your personal savings to your business.
Answer:
ASSETS = LIABILITIES + EQUITY
P100 0 P100
1.
2.
3.
4.
5.

1. You found additional P20 underneath your pillow. You also invested this amount to your business.
2. Your business obtained a loan of P500.
3. Your business earned income of P2,000 during the period. The income did not affect your liabilities.
4. Your business incurred expenses of P800 during the period. The expenses did not affect your liabilities.
5. Get the totals of the assets, liabilities and equity, INCLUDING the effects of the given example. Check of the
accounting equation is balanced.

D. An entity had total liabilities of P340,000 at the end of the year. The beginning equity is P280,000. If during the year,
the entity earned income of P420,000 and incurred expenses of P390,000, how much is the ending balance of total
assets? ______________________

E. Entity A had total assets and total liabilities of P120M and P70M, respectively, at the beginning of the period. During
the period, Entity A earned total income of P60M and incurred total expenses of P40M. Entity A’s total assets
increased to P130M by year-end. There were no additional contributions by, or distributions to, the owner during the
period. How much is Entity’s A ending total liabilities? ________________________

F. Entity B had total assets, liabilities, and equity of P120M, 75M, and 45M, respectively, at the beginning of the period.
During the period, Entity B’s total liabilities decreased by 20M, while its profit was P25M. There were no other
transactions or events that affected equity during the period. How much is Entity B’s ending total assets?
_____________
G. Instruction: Indicate the classifications of the accounts listed below as either an ASSET, LIABILITY, EQUITY,
INCOME or EXPENSE account under Column A and as either a BALANCE SHEET account or an INCOME
STATEMENT account under Column B.

Account Titles Column A Column B

1. Accounts payable
2. Notes receivable
3. Doubtful accounts
4. Building
5. Rent expense
6. Unused supplies
7. Cash
8. Accrued salaries
expense
9. Rent income
10. Unearned income
11. Gain
12. Depreciation
13. Accrued interest income
14. Accounts receivable
15. Utilities payable
16. Prepaid insurance
17. Taxes and licenses
18. Loss
19. Interest receivable
20. Inventory

H. Transaction Analysis – Sample Business Transactions of a Service Business

Instruction: For each transaction, fill in the spaces to answer the following questions:
A. What are the accounts affected by the transaction?
B. What type of accounts are affected? (Asset, Liability, Equity, Drawing, Income or Expense)
C. Should the account be increased or decreased?
D. Should the account be debited or credited?

A B C D
Account Type of Increase or Debit or
Transaction
Title Account Decrease Credit
1 N. Santos invested P200,000 to start an auto repair business.

2 N. Santos invested his tools costing P14,000 in the business.

3 Bought a computer from Burroughs Company for cash, P20,000.

4 Bought tables and chairs from Nicfur on credit, P12,000.

5 Issued a promissory note for repair equipment bought, P45,000.

6 Borrowed money from the bank, P35,000.

7 Received cash for repair service rendered, P40,000.

8 Billed Mr. Cruz, a customer for repair service rendered, P3,000.

9 Received promissory note, P4,000 for repair service rendered.

10 Bought office supplies for cash, P800.

11 Paid rent for the office space, P3,000.

12 Paid the salaries of the employees, P12,000.

A portion of the office space is being sub-leased to a tenant and

13 received P500 as payment for rental.

14 The owner withdrew cash for his personal use, P2,500.

15 Paid Nicfur partially, P6,000 (see transaction #4)

16 Paid the promissory note (see transaction #5)

17 Paid the loan in full (see transaction #6)

18 Collected partially the account of Mr. Cruz, P2,000. (see

transaction #8)

19 Collected the promissory note in transaction #9.

20 Mortgaged the repair equipment as collateral for a loan, P10,000.

21 Issued a promissory note for P6,000 to Nicfur to settle the

account in full.

22 Received a promissory note from Mr. Cruz in full payment of

his account, P1,600.

Paid the following expenses:

Advertising P1,400
23 Insurance 2,100

24 Bought tables, P8,000 and paid P2,000 down.

25 Billed a customer for repair service rendered, P3,000 and

collected 50%.