Lesson 5

UNDERSTANDING THE BASIC ACCOUNTING EQUATION

Plus revenue, minus expenses, minus drawing so makikita niyo dito yung asset
nasa kaliwa yung liabilities at tsaka itong owners’ equity nasa kanan. So ang normal
balance ang ng.. ang ibig sabihin ng debit ay kaliwa. Ang ibig sabihin ng credit – kanan.
Yun lang ang ibig sabihin non, kaliwa, kanan. Dahil don sa equation diba? Debit nasa
kaliwa. Credit nasa kanan. Now sa pagrerecord natin sa journal tsaka sa ledger debit,
credit kaliwa, kanan lang yon. Saan niyo lalagay ‘yong ah… amount, sa debit ba o credit
okay? So yung uh, liabilities nasa kanan tsaka yung owners’ equity nasa kanan, pero
yung formula kasi ng ah eh- owners’ equity: beginning, capital plus additional capital
plus revenue minus expenses minus drawing. Itong expenses tsaka drawing negative
yung sign niya. So… instead na doon siya sa kanan or credit, magiging debit sila kasi
opposite yung sign nila. Ang magiging uh, kamukha nila ng position ay yung asset
although capital account sila nakabelong dun sa equation pero yung sign nila ay negative,
matutulad sila doon sa asset. So nasa kaliwa, nasa debit. Okay? Nakukuha niyo ba,
Dianne?
Student: Opo.
Prof. Corrales: Nakukuha mo Dianne?
Student: Opo.
Prof. Corrales: Oh, so, kapag asset anong normal balance?
Student: Ano po?
Prof. Corrales: Anong normal balance ng asset?
Student: Ano po, positive?
Prof. Corrales: Hindi, balance ang (inedible)
Student: Debit.
Prof. Corrales: Debit. Normal balance ng liabilities?
Student: Credit po.
Prof. Corrales: Owner’s equity or Capital, ano?
Student: Credit din po.
Prof. Corrales: ‘Pag tumaas ang asset ano? Debit or credit?
Student: D-debit po.
Prof. Corrales: ‘Pag bumaba?
Student: Credit po.
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UNDERSTANDING THE BASIC ACCOUNTING EQUATION

Prof. Corrales: Okay… Liabilities- ‘pag tumaas ang liabilities ano?

Student: Debit-Debit ay- credit po.
Prof. Corrales: ‘Pag bumaba?
Student: Debit po.
Prof. Corrales: oh, Owners’ ah- Beginning, Capital, Additional Capital?
Student: Credit po.
Prof. Corrales: Uh… Revenue?
Student: Credit din po.
Prof. Corrales: Expenses?
Student: ‘Pag tumaas po?
Prof. Corrales: Oo.
Student: Debit po.
Prof. Corrales: Drawings?
Student: Debit din po.

Okay, clear na tayo don? So, tama, we go to the next slide. So, the basic features
of the accounting model in use today trace roots back over 500 years. Luca Pacioli, A
renaissance-era monk, developed a method for tracking the success of failure of trading
ventures. The central part of accounting system is the notion that a business entity can be
described as a collection of assets and the corresponding claims against those assets. The
claims can be divided into the claims of creditors and owners. Anong ibig sabihin no’n?
Uh… dalawang portion ‘yon. diba? ‘Yung asset mo dalawang portion ang
pinagkukuhanan non. Liabilities and capital. Kung meron kang puhunan eh yun yung i-
illustrate mo sa- yun yung inillustrate ko sa youtube na uh… ang una, kung wala ka
namang utang, malaking pera mo talaga. Asset is equal to capital. Kung kaya ng capital
mo i-produce yung uh… isustain ang business, yung business activities then, you only
have asset is equal to capital. Pero kapag hindi kaya ng capital mo yung pagpapaandar
mo ng negosyo, manghihiram ka, so magkakaroon ka ng liabilities so yung equation
naeexpand. Assets is equal to liabilities plus capital. Clear ba?
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UNDERSTANDING THE BASIC ACCOUNTING EQUATION

So, asset. Anong ibig-sabihin ng asset? Asset are the economic resources of the
entity, and include such items as cash, accounts receivable, inventories, land buildings,
equipment, and even intangible assets like patents and other legal rights. Asset entail
probable future economic benefits to the owner. Anong ibig sabihin? Ito yung mga pwede
mong magamit na magkakaroon ka ng benefit at the end kumbaga pwede mong gamitin
para kumite. ‘Yun yung ibig-sabihin ng asset. Yung mga bagay na pwede mong
pagkakitaan.

Liabilities. Ano daw yung liabilities? Liabilities are amounts owed to others
relating to loans, extension of credit, and other obligations arising in the course of
business. Implicit to the notion of a liability is the idea of an “existing” obligation to pay
or perform some duty. So, Yung liabilities mo mag-iincrease yun ng asset mo but at the
same time, meron kang obligation na bayaran ‘yon o palitan yun with the same amount or
value. So nagkakaroon ka ng asset sa pamamagitan ng ibang tao pero yung asset na yun
hindi entirely sayo at the moment mo lang magagamit kasi kailangan mong ibalik iyon sa
hiniraman mo.

Owners’ Equity. Ano ‘yon? Owners’ Equity is the owner’s stake in the business.
It is sometimes called net assets, because it is equivalent to assets minus liabilities for a
particular business. So nadiscuss ko na yun kanina yung capital mo yun ang pwede mong
ipambili ng mga assets mo. Yung assets mo, yung mga bagay na pwede mong
pagkakitaan in the future. ‘pagka galing yung asset mo sa sarili mong pera, ang ibig
sabihin no’n ay owner’s equity ang source mo. Who are owners? Sino daw yung owners?
Owners depends on the- the term owners depends on the legal form of the entity- it
depends kung sole proprietorship bay an, partnership or corporation. ‘Pag sinabi nating
sole proprietorship, isa lang yung may ari. ‘Pag partnership, two or more persons. ‘Pag
corporations, group of persons. So, ‘pag sinabi mong owners, sole proprietorship yan
then na-iisang tao yung may ari, kung sino yung nag-extend ng puhunan.

May I repeat, Kapag ka- mag-isa lang yung taong namumuhunan then the owner
is the person is exte- uh… doing this business kapag partnership kung sino yung
nagbigay ng puhunan para umandar yung negosyo. ‘Pag corporation ang tawag doon ay
stockholders, so, partnership ang may-ari partners, ang corporation, may ari,
stockholders, sole proprietorship, ang may-ari yung tao mismo. So, ‘pagpresent mo ng
financial statement kunyari, uh… Teresa Corrales may sari-sari store so anong-sinong
owner no’n? Si Teresa Corrales. Kunyare na nagform ako ng partnership with my friend
Lesson 5

UNDERSTANDING THE BASIC ACCOUNTING EQUATION

kay Edith. So, Teresa Corrales and Edith Peralta Partnership. Yun yung may-ari. Si Edith
Peralta at si Teresa Corrales. Ngayon ginawa naming corporation, ginawa naming Tedith,
Tedith corporation. So ang may-ari ay ang stockholders ng Tedith Corporation. Gets niyo
na? Dianne? Dianne okay na?
Student: Opo.
Prof. Corrales: Napakinggan mo ba?
Student: Opo.
Prof. Corrales: Anong sinabi ko?
Student: Yung sa ano po. Sa entities po.
Prof. Corrales: Oh? Ano sa entities?
Student: Kapag sole proprietorship po- yung sa sole proprietorship po isang tao lang. Ta’s
sa partnership po ano, more than two or more po. Ta’s partners po yung tawag. Tapos po
sa corporations, ano po, stockholders po.
Prof. Corrales: Okay. So, listen well. Kung ikaw ang taga sagot para sa klase.

Expanding the basic equation tayo. Asset is equal to liabities plus owners’ capital.
So yung kaninang pinresent ko na yan di’ba? So sabi natin, yung capital is beginning
capital plus additional capital plus net income minus drawing. Yung net income ang
nirerepresent no’n ay revenue and expenses. Kapag mas malaki ang revenue, that is net
income. Kapag mas malaki ang expenses, that is net loss. Ang net income dinadagdag
natin sa capital, ang net loss mina-minus natin sa capital. So… tandan niyo yung
expanded formula ha?

So, Analyzing the expanded formula and it’s application on the financial
statements generated by the accounting cycle. So, i-analyze na natin. Bakit kailangan
nating malaman yung expanded formula kasi malaki yung- doon natin makikita yung
financial statements na gagawin from this formula. So, yung mga financial statements
naman, ay detailed presentation lang ng formula. So ang basic equation natin or basic
formula natin is asset is equal to liabilities plus owners’ equity. Diba yun yung basic,
tapos yung expanded, Asset is equal to liabilities plus capital where capital is equal to
beginning capital plus additional capital plus net income or plus revenue minus expenses
minus drawing. Yung balance sheet makikita niyo, red yung color niya. Yung basic
equation yung nirerepresent nung balance sheet. Asset is equal to liabilities plus capital.
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UNDERSTANDING THE BASIC ACCOUNTING EQUATION

Tapos itong capital statement, color blue di’ba? Nakikita niyo dun sa legend, kulay blue.
Ang nirerepresent niya ay beginning capital plus additional capital plus net income or
minus net loss minus drawing. Yan yung financial statement ay yun yung formula for the
capital statement okay? Now. Itong income statement nakita niyo brown. So ang formula
ng income statement ay revenue minus expenses. Clear na?

So meron tayong ipeprepare na tatlong financial statement out of the accounting

process or accounting cycle nap ag-aaralan natin. Kumbaga, magsisimula tayo sa isang
transaction. Yung transaction na yon, ipaprocess natin para ma-ipresent natin as an
element of the balance sheet, capital statement, and income statement. Clear ba? Sino ba
ang ka… ka-ano ko ngayon? Sino ba ang-
Student: Yes po, ma’am.
Prof. Corrales: Oh, iba kasi ang nakalagay na mukha eh. Issa. Ano? Explain mo yung
inexplain ko kung naintindihan mo.
Student: Uh… in accounting po, you need to prepare three uh… statement accounts
which is the capital income then sa revenue-
Prof. Corrales: Hindi yan- hindi statement accounts ha? Uh, three financial statements. so
ano yung financial statements na ‘yon?
Student: Kung balance sheet accounts capital-
Prof. Corrales: Hindi siya balance sheet. Wala yung account. Ang ibig-sabihin lang
nitong thread na ito. Itong mga ‘to, accounts ng balance sheet pero ano yung ipeprepare
natin na financial statement? Hello.
Student: Yung capital statement accounts lang ma’am?
Prof. Corrales: Hindi. There shouldn’t have a word accounts. Capital statement lang,
balance sheet and Income statement. So ano yung tatlong financial statements?
Student: Balance sheet, capital statement, and income statement po.
Prof. Corrales: Anong tawag mo dito sa asset, liabilities and capital?
Student: Balance sheet accounts.
Prof. Corrales: Okay. Itong beginning capital plus additional capital plus net income
minus drawing? Ano tawag diyan?
Student: Capital statements account po.
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UNDERSTANDING THE BASIC ACCOUNTING EQUATION

Prof. Corrales: ‘Tong revenue minus expenses?

Student: Yung Income statement po.
Prof. Corrales: Ano? Ano tawag dito?
Student: Income statement account.
Prof. Corrales: Very good. Okay sige.