Fundamentals of SENIOR

Accountancy, Business HIGH

and Management 1 (FABM 1) SCHOOL

Self-Learning
Module

Accounting Equation 8
666
Quarter 3
Fundamentals of Accountancy, Business and Management 1
Quarter 3 – Self-Learning Module 8: Accounting Equation
First Edition, 2020

Republic Act 8293, Section 176 states that no copyright shall subsist in any
work of the Government of the Philippines. However, prior approval of the
government agency or office wherein the work is created shall be necessary for
exploitation of such work for profit. Such agency or office may, among other things,
impose as a condition the payment of royalties.

Borrowed materials (i.e., songs, stories, poems, pictures, photos, brand

names, trademarks, etc.) included in this module are owned by their respective
copyright holders. Every effort has been exerted to locate and seek permission to use
these materials from their respective copyright owners. The publisher and authors
do not represent nor claim ownership over them.

Published by the Department of Education - Schools Division of Pasig City

Development Team of the Self-Learning Module

Writer: Hedelita B. Calonia
Editor: Dr. Edna D. Camarao
Reviewers:
Content/Language: Jennifer M. Hobrero, Emmanuel B. Penetrante
Technical: Emmanuel B. Penetrante
Illustrator: Name
Layout Artist: Name
Management Team: Ma. Evalou Concepcion A. Agustin
OIC-Schools Division Superintendent
Aurelio G. Alfonso EdD
OIC-Assistant Schools Division Superintendent
Victor M. Javeña EdD
Chief, School Governance and Operations Division and
OIC-Chief, Curriculum Implementation Division

Education Program Supervisors

Librada L. Agon EdD (EPP/TLE/TVL/TVE)

Liza A. Alvarez (Science/STEM/SSP)
Bernard R. Balitao (AP/HUMSS)
Joselito E. Calios (English/SPFL/GAS)
Norlyn D. Conde EdD (MAPEH/SPA/SPS/HOPE/A&D/Sports)
Wilma Q. Del Rosario (LRMS/ADM)
Ma. Teresita E. Herrera EdD (Filipino/GAS/Piling Larang)
Perlita M. Ignacio PhD (EsP)
Dulce O. Santos PhD (Kindergarten/MTB-MLE)
Teresita P. Tagulao EdD (Mathematics/ABM)

Printed in the Philippines by Department of Education – Schools Division of

Pasig City
 Fundamentals of
SENIOR
Accountancy, Business HIGH
and Management 1 SCHOOL

(FABM 1)

Self-Learning
Module

8
Quarter 3

Accounting Equation
Introductory Message

For the facilitator:

Welcome to the Senior High School – Fundamentals of Accountancy, Business

and Management 1 Self Learning Module on Accounting Equation!

This Self-Learning Module was collaboratively designed, developed and

reviewed by educators from the Schools Division Office of Pasig City headed by its
Officer-in-Charge Schools Division Superintendent, Ma. Evalou Concepcion A.
Agustin, in partnership with the City Government of Pasig through its mayor,
Honorable Victor Ma. Regis N. Sotto. The writers utilized the standards set by the K
to 12 Curriculum using the Most Essential Learning Competencies (MELC) in
developing this instructional resource.

This learning material hopes to engage the learners in guided and independent
learning activities at their own pace and time. Further, this also aims to help learners
acquire the needed 21st century skills especially the 5 Cs, namely: Communication,
Collaboration, Creativity, Critical Thinking, and Character while taking into
consideration their needs and circumstances.

In addition to the material in the main text, you will also see this box in the
body of the module:

Notes to the Teacher

This contains helpful tips or strategies that
will help you in guiding the learners.

As a facilitator you are expected to orient the learners on how to use this
module. You also need to keep track of the learners' progress while allowing them to
manage their own learning. Moreover, you are expected to encourage and assist the
learners as they do the tasks included in the module.
 For the learner:

Welcome to Fundamentals of Accountancy, Business and Management 1 Self

Learning Module on Accounting Equation!

This module was designed to provide you with fun and meaningful
opportunities for guided and independent learning at your own pace and time. You
will be enabled to process the contents of the learning material while being an active
learner.

This module has the following parts and corresponding icons:

Expectations - This points to the set of knowledge and skills

that you will learn after completing the module.

Pretest - This measures your prior knowledge about the lesson

at hand.

Recap - This part of the module provides a review of concepts

and skills that you already know about a previous lesson.

Lesson - This section discusses the topic in the module.

Activities - This is a set of activities that you need to perform.

Wrap-Up - This section summarizes the concepts and

application of the lesson.

Valuing - This part integrates a desirable moral value in the

lesson.

Posttest - This measures how much you have learned from the
entire module.
 EXPECTATIONS

After going through this module, you are expected to:

1. illustrate the accounting equation;
2. analyze simple cases using the accounting equation; and
3. solve simple cases using accounting equation.

PRETEST

Directions: Write TRUE if the statement is correct, and FALSE if otherwise.

1. The accounting equation illustrates the relationship between the company’s

assets, liabilities, and equity.

2. The three main elements of accounting assets, liabilities, and capital or

owner’s equity.
3. There is only one single method of recording the business transaction.
4. In an accounting equation, assets are on the right side of the equation,
opposite the liabilities and owner’s equity.

5. Accounting is based on a traditional approach of single entry system in which

the dual effects of the business transaction is recorded.

RECAP

Directions: Supply the missing terms.

1. It is important to understand the manner in which data are presented

using the underlying accounting assumptions which are _______________,
________________, ________________, ________________ and
________________.

2.To be useful, financial reports generated by professional accountants use set

of basic accounting principles which are _______________, _____________,
_______________, __________________, ____________________, __________________
and ____________________.
 LESSON

Every transaction will affect on the business’s financial position. The financial
position is measured in terms of assets, liabilities, and owner’s equity. Each basic
accounting element can be expressed in an accounting equation:

ASSETS = LIABILITIES + OWNER’S EQUITY (or STOCKHOLDER’s EQUITY)

The foundation for analyzing business transactions is the accounting equation. To
understand the accounting equation, let us first define and understand the nature
of the basic accounting elements namely: assets, liabilities, owner’s equity or capital,
revenues, expenses, and drawing.
The Accounting Elements

1. Assets- these are the resources controlled by the business as a result

of past transactions and events from which future economic benefits
are expected to flow to the business. Anything that is of value that is
owned by the business is its assets. Assets can be classified as current
assets and noncurrent assets. Current assets are those that can be
realized reasonably in cash within one year from the reporting date or
the normal operating cycle, whichever is longer. If an asset cannot be
classified as current, then its rightful classification is noncurrent.
Examples of assets include cash, accounts receivable, notes receivable,
inventories, unused supplies, prepaid rent, equipment, furniture and
fixtures, building, land, allowance for doubtful accounts, and the
accumulated depreciation.
2. Liabilities-These are the present obligations of an entity arising from
past transactions or events. The settlement of liabilities is expected to
result in an outflow of resources from the business embodying
economic benefits. Liabilities can be current or noncurrent. Current
liabilities are those which are expected to be settled in cash by the
business within the normal operating cycle of the business or within
one year from the reporting date, whichever is longer. Noncurrent
liabilities are those liabilities are obligations reasonably expected to be
paid in cash beyond one year. Examples of liabilities include accounts
payable, notes payable, loans payable, mortgage payable, and advances
from customers.
3. Owner’s Equity-The owner’s equity contains the net difference between
total assets and total liabilities. The owner’s drawing account is used
 when the withdrawal is made by the owner to determine total
withdrawals for each accounting period.
4. Revenues-These are earnings arising from the main operations of the
business. Service revenue, interest income, sales, and professional fees
are examples of revenues.
5. Expenses-These are the costs being incurred by the business in
generating revenues and doing mainline operations of the business.
Examples of expenses include utility expense, salaries expense, wages
expense, taxes and licenses, cost of sales, supplies expense, doubtful
accounts expense, and depreciation expense.

The Accounting Equation

What does the accounting equation typically mean? It can be structured :

Assets = Liabilities + Owner Equity
Liabilites = Assets + Owner’s Equity
Owner’s Equity = Assets - Liabilities

Assets must be equal to the sum of the liabilities and owner’s equity. It is important
to ensure the balance of the movement of the three main accounts being used in
accounting. The equal sign separates the account on the left side (debit) from the
right side (credit) of the equation. The accounting equation is the backbone of the
entire accounting cycle. Movements of specific accounts are either debit or credit,
depending on the account’s normal balance.

DEBIT CREDIT

ASSETS = LIABILITIES + OWNER’S EQUITY

Examples

1. XYZ Company has total assets amounting to ₱250,000. The company’s debt
amounts to ₱150,000. The company’s capital is ₱100,000.

Assets = Liabilities + Owner’s Equity (or Capital)

₱250,000 = ₱ 150,000 + ₱150,000

2. Ruby Ochoa invested ₱240 ,000 to start a catering business.

Assets = Liabilities + Owner’s Equity (or Capital)

₱100,000 = ₱0 + ₱100,000

3. Ruby Ochoa loans ₱100,000 from the bank as an additional investment to her
catering business.

Assets = Liabilities + Owner’s Equity (or Capital)

₱100,000 = ₱ 100,000 + ₱0

4. Ruby Ochoa purchased standard catering equipment (tongs, dinner plates,

wine glasses, and tablecloths) worth ₱ 75,000 in cash.

Assets = Liabilities + Owner’s Equity (or Capital)

₱75,000 + (75,000) = ₱0 + ₱0

Equipment (cash)

Note: Increase in assets equipment, decrease in another asset cash

5. Ruby Ochoa withdraw cash from the catering business amounting to

₱20,000 for personal use.

Assets = Liabilities + Owner’s Equity (or Capital)

(₱20,000) = ₱0 + (₱20,000)

Note: The parentheses ( ) means a decrease in value.

 ACTIVITIES

Activity 1: Learning from the equation.

Directions: Complete the table by providing what is missing using
the accounting equation.

ASSETS LIABILITIES OWNER’S EQUITY

₱115,000 1. ₱0
₱24,000 ₱10,500 2.
₱45,000 ₱22,200 3.
4. ₱24,000 ₱10,000
5. ₱8,000 ₱81,000

Activity 2: Think!
Directions: Supply what is asked.

1. H & E Beauty Salon has total assets amounting to ₱240,000. Total

capital is ₱ 112,480. Liabilities should be recorded at ₱____________?
2. Assets should be recorded at ₱___________, when total liabilities and owner’s
equity is ₱ 580,000.
3. The business’ capital amount is ₱ ______________ when liability is ₱150,000
and total assets is ₱250,000.
4. Based on numbers 1 to 3, total assets is ₱ ___________.
5. Based on numbers 1 to 3, total liabilities and owner’s equity is ₱______.

WRAP-UP

To summarize what you have learned in the lesson, answer the following
questions:

1. Every business transaction affect on the company’s financial position. The

company’s financial position is measured by three important accounting
elements. Are these elements important in the accounting equation? Why yes?
Why not?
2. How were you able to make use of the accounting equation to analyze simple
accounting cases?
3. If a company keeps accurate records, the accounting equation is always in
“balance”. Were you able to use this in solving simple cases? How?
 VALUING

Reflect on this!

“Learning is not attained by chance, it must be sought for with ardor and
diligence.” -Abigail, Adams

POSTTEST

Directions: Determine the effect of the transactions below whether it increases,

decreases, or no effect on the business’ assets, liabilities, or owner’s
equity.

1. Issued check amounting to ₱2,400 for office supplies.

2. Paid rent for three months, ₱ 45, 000.
3. Bought delivery van for ₱1,240,000. Paid ₱240,000 down payment and the
remaining balance is on the account.
4. Obtained a loan for ₱500,000.
5. Paid ₱1,000,000 for the remaining balance in transaction number 3.
 KEY TO CORRECTION

ACTIVITY 1:
1. ₱115,000 decrease in liability.
2. ₱13,500 5.Decrease in assets and
3. ₱22,800 increase in liability.
4. ₱34,000 4Increase in assets cash and
5. ₱89,000 cash and increase in liability.
van,decrease in another assets
ACTIVITY 2
5. FALSE 3.Increase in assets delivery
4. FALSE 1. ₱127,520 cash.
3. FALSE 2. ₱580,000 rent, decrease in another asset
2. TRUE 3. ₱100,000 2.Increase in assets prepaid
1. TRUE 4. ₱1,070,000 decrease in another asset cash
PRETEST 5. ₱1,070,000 1.Increase in assets supply,
POSTTEST

References
Ballada, W. 2017. Fundamentals of Accountancy, Business, and Management 1.
VDomDane Publishers.

Banggawan, RB. Asuncion, DJ. 2017. Fundamentals of Accountancy, Business, and

Management 1. Real Excellence Publishing.

Feme, PM. Cabuñag, HP. 2017. Fundamentals of Accountancy, Business and

Management 1. Fastbooks Educational Supply, Inc

Ferrer, RC. Millan, CV. 2017. Fundamentals of Accountancy, Business, and

Management 1. Bandolin Enterprise. San Juan, DA. 2018. Fundamentals
of Accounting. Elmoer Publishing

Rabo, JS. Tugas,FC.Salendrez, HE. 2016. Fundamentals of Accountancy,

Business, and Management 1. Vibal Group Inc.

"Accounting Interview Questions - Top 14 Questions You Can Expect." Corporate

Finance Institute. October 22, 2019. Accessed on June 20, 2020.
https://corporatefinanceinstitute.com/resources/careers/interviews/accou
nting-interview-questions/.

Murphy, Chris B. "What Accounting Equations Show Us." Investopedia. May 06,
2020. Accessed on July 22, 2020. https://www.investopedia.com/
terms/a/accounting-equation.asp#:~:text=The accounting equation

Accounting Equation: Explanation: AccountingCoach." AccountingCoach.com.

Accessed on July 22, 2020. https://www.accountingcoach.com/accounting-
equation/explanation.

"Accounting Equation - What Is the Accounting Equation?" Debitoor. Accessed on

July 22, 2020. https://debitoor.com/dictionary/accounting-equation.