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Perform operations involving simple cases with the use of accounting equation.
Evidence of Students can perform the Accounting Cycles of business enterprises, solve problems related to
Learning/ partnership and corporation. Quizzes, Exercises, Group problem solving, Major Examinations.
Assessment Tools
Module All activities must be written in a separate paper and to be submitted upon the
requirements collection of the offline module schedule. You may also opt to submit your output via
submission email or messenger if you will have the chance to access the internet (please check
instructions your timeline for guidance).
Topics (Coverage) Topics:
Prelim
Session 1: Introduction of Accounting
Session 2: Accounting Concepts and Principles
Session 3: The Accounting Equation
Session 4: Types of Major Accounts
Target First Students of the BSA and BSAIS.
Participants
Learning Time: August 2021- January 2022
Means for Learner The students may contact teacher for assistance and guidance to the following:
Support
Airen Bequiso
FB: Airen Laurente Bequiso
Email: airenbequiso0917@gmail.com
Contact number: 0942-527-1474
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This part of the module indicates how the student activities will be graded.
Answer the assessment tool below to know your level of preparedness in Financial Accounting & Reporting. Please check
on the box that best describes your skill level. Use the box under the “Before” column to enter your skill level before
proceeding to the activities in the module. You answer the “After” Column after finishing the module. Use the following
scale for your guide
Learning Objectives:
At the end of the lesson, you will be able to:
Define accounting;
Describe the nature and purpose of accounting;
Give examples of branches of accounting;
State the function of accounting in a business;
Differentiate external and internal users of accounting information;
Narrate the history/origin of accounting;
State the forms of business organization; and
State the types of business according to their activities.
DEFINITION
Accounting is a process of identifying, recording and communicating economic information that is useful in making economic
decisions.
Identifying – The accountant analyzes each business transaction and identifies whether the transaction is an “accountable
event” or “non-accountable event.” This is because only “accountable events” are recorded in the books of accounts. “Non-
accountable events” are not recorded in the books of accounts.
Recording – The accountant recognizes (i.e., records) the “accountable events” he has identified. This process is called
“journalizing.” After journalizing, the accountant then classifies the effects of the event on the “accounts.” This process is
called “posting.”
Communicating – At the end of each accounting period, the accountant summarizes the information processed in the
accounting system in order to produce meaningful reports. Accounting information is communicated to interested users
through accounting reports, the most common form of which is the financial statements.
Nature of accounting
Accounting is a process with the basic purpose of providing information about economic activities intended to be useful
in making economic decisions.
Quantitative information
Qualitative information
Financial information
To provide external users with information that is useful in making investment and credit decisions; and
Accounting can be traced as far back as the prehistoric times, perhaps more than 10,000 years ago.
Archaeologists have found clay tokens as old as 8500 B.C. in Mesopotamia which were usually cones, disks, spheres and
pellets. These tokens correspond to commodities like sheep, clothing or bread. They were used in the Middle West in
keeping records. After some time, the tokens were replaced by wet clay tablets. During such time, experts concluded this
to be the start of the art of writing. (Source: http://EzineArticles.com/456988)
Double entry records first came out during 1340 A.D. in Genoa.
In 1494, the first systematic record keeping dealing with the “double entry recording system” was formulated by Fra Luca
Pacioli, a Franciscan monk and mathematician. The “double entry recording system” was included in Pacioli’s book titled
“Summa di Arithmetica Geometria Proportioni and Proportionista,” published on November 10, 1494 in Venice.
The concept of “double entry recording” is being used to this day. Thus, Fra Luca Pacioli is considered as the father of
modern accounting.
1. Internal users – those who are directly involved in managing the business.
Examples:
Business owners who are directly involved in managing the business
Board of directors
Managerial personnel
2. External users – those who are not directly involved in managing the business.
Examples:
1. Service business
2. Merchandising (Trading)
3. Manufacturing
DEFINITION
Accounting concepts and postulates are a set of logical ideas and procedures that guide the accountant in recording and
communicating economic information.
It provide reasonable assurance that information communicated to users is prepared in a proper way.
ACCOUNTING ASSUMPTIONS
Accounting assumptions are basic notions or fundamental premises on which the accounting process is based.
It serve as the foundation or bedrock of accounting in order to avoid misunderstanding but rather enhance the
understanding and usefulness of financial statements.
Separate entity concept – The business is viewed as a separate entity, distinct from its owner(s). Only the transactions
of the business are recorded in the books of accounts. The personal transactions of the business owner(s) are not recorded.
Historical cost concept (Cost principle) – assets are initially recorded at their acquisition cost.
Going concern assumption – The business is assumed to continue to exist for an indefinite period of time.
Matching – Some costs are initially recognized as assets and charged as expenses only when the related revenue is
recognized.
Accrual Basis of accounting – income is recorded in the period when it is earned rather than when it is collected, while
expense is recorded in the period when it is incurred rather than when it is paid.
Prudence – The observance of some degree of caution when exercising judgments under conditions of uncertainty. Such
that, if there is a choice between a potentially unfavorable outcome and a potentially favorable outcome, the unfavorable
one is chosen. This is necessary so that assets or income are not overstated and liabilities or expenses are not understated.
Reporting Period – The life of the business is divided into series of reporting periods.
Stable monetary unit – Assets, liabilities, equity, income and expenses are stated in terms of a common unit of measure,
which is the peso in the Philippines. Moreover, the purchasing power of the peso is regarded as stable. Therefore, changes
in the purchasing power of the peso due to inflation are ignored.
Materiality concept – An item is considered material if its omission or misstatement could influence economic decisions.
Materiality is a matter of professional judgment and is based on the size and nature of an item being judged.
Cost-benefit – The costs of processing and communicating information should not exceed the benefits to be derived from
the information’s use.
Full disclosure principle – Information communicated to users reflect a balance between detail and conciseness, keeping
in mind the cost-benefit principle.
Consistency concept – Like transactions are accounted for in like manner from period to period.
ACCOUNTING STANDARDS
Accounting concepts and principles are either explicit or implicit. Explicit concepts and principles are those that are
specifically mentioned in the Conceptual Framework for Financial Reporting and in the Philippine Financial Reporting
Standards (PFRS). Implicit concepts and and principles are those that are not specifically mentioned in the foregoing but
are customarily used because of their general and longtime acceptance within the accountancy profession.
The PFRSs are Standards and Interpretations adopted by the FRSC. They consist of the following:
c. Interpretations
Qualitative characteristics are the traits that determine whether an item of information is useful to users. Without this
characteristics, information may be deemed useless.
1. Fundamental qualitative characteristics - these are the characteristics that make information useful to others. They
consist of the following:
a) Relevance
b) Faithful representation
2. Enhancing qualitative characteristics - these characteristics support the fundamental characteristics. They enhance
the usefulness of information. As such, they must be maximized. The enhancing qualitative characteristics consist
of the following:
a) Comparability
b) Verifiability
c) Timeliness
d) Understandability
RELEVANCE
Information is relevant if it can affect the decisions of users. Without this trait, information is deemed irrelevant. Relevant
information has the following:
1. Predictive value – information has a predictive value if it can help users to make predictions about future outcomes.
2. Confirmatory value (or feedback value)- this concept is related to the predictive value. Information has a confirmatory
value if it can help users confirm their past contributions.
3. Materiality – is an ‘entity-specific’ aspect of relevance, meaning it depends on the facts and circumstances surrounding
a specific entity.
FAITHFUL REPRESENTATION
Faithful representation means the information provides a true, correct and complete depiction of what it purports to
represent. Faithfully represented information has the following:
1. Completeness – all information necessary for users to understand the phenomenon being depicted is provided.
3. Free from error – there are no errors in the description and in the process by which the information is selected and
applied.
COMPARABILITY
The information helps users in identifying similarities and differences between different sets of information.
VERIFIABILITY
Different users could reach consensus as to what the information purports to represent.
TIMELINESS
UNDERSTANDANBILITY
Control means that the owner has the exclusive right to enjoy the
1 True False True False
benefits and the ability to prevent others from enjoying those benefits.
2 True False Accounting equation= Asset - Liabilities + Owner’s Equity True False
3 True False Asset is equal to 100 if the liability is 90 and the equity is 190. True False
5 True False There are two types of obligation namely; legal and constructive. True False
DEFINITION
ASSETS – are the economic resources you control that have resulted from past events and can provide you
with economic benefits.
Control
You don’t necessarily need to own the economic resource for it to be considered your asset. What is important is
that you control the right over the economic benefits that the resource may produce. “Control” means you have the exclusive
right to enjoy those benefits and the ability to prevent others from enjoying those benefits.
Past events
For example, you have an intention of purchasing a cell phone next year. Right now, the cell phone is not yet your asset.
The cell phone becomes your asset only after you have purchased it and have taken possession over it.
Physical possession, however, is not always necessary for Control to exist. For example, the money that you have deposited
to a bank remains your asset despite the transfer of physical possession. This is because you still control the right over the
money by withdrawing it or spending it through electronic means.
Economic benefits
To be an asset, the economic resource must have the potential to provide you with economic benefits in at least one
circumstance.
For example, the economic resource can be:
a. Sold, leased, transferred or exchanged tor other assets;
b. Used singly or in combination with other assets produce goods or provide services;
c. Used to enhance the value of other assets,
d. Used to promote efficiency and cost saving; or
e. Used to settle a liability
LIABILITIES – are your present obligations that have resulted from past events and can require you to give
up economic resources when settling them.
Obligation
Obligation means a duty or responsibility. An obligation is either
a. Legal obligation -an obligation that results from a contract, legislation, or other operation of law; or
b. Constructive obligation - an obligation that results from your past actions (e.g. past practice or published policies)
that have created a valid expectation on others that you will accept and discharge certain responsibilities.
Analysis:
You have no present obligation, and hence no liability, because you have not yet purchased and received the
cell phone, and therefore, you are not required to pay for the purchase price.
You purchased a cell phone on credit. You took possession over the cell phone but have not yet paid
the purchase price.
Analysis:
You have a present obligation, and hence a liability, because:
a. you have already purchased and received the cell phone; and
b. as a consequence, you are required to pay for the purchase price.
Your obligation is a legal obligation because it arises from a contract.
You earned taxable income during the period but have not yet paid the tax due to the government.
Analysis:
You have a present obligation because:
a. you earned taxable income; and
b. as a consequence, you are required to pay the corresponding tax due.
Although not stated in the sales contract you have a publicly-known policy of providing free repair
services for the goods your business sells. You have consistently honored this implied policy in the
past.
Analysis:
You have a present obligation to provide free repair services for the goods you have already sold because:
a. you have already taken an action by creating valid expectation on your customers that you will provide free
repair services; and
b. as a consequence, you will have to provide those free services.
Your obligation is a constructive obligation.
EQUITY – is simply assets minus liabilities. Other terms for equity are “capital”, “net assets”, and “net worth”.
Illustration 1:
You decided to put up a barbeque stand and have estimated that you will be needing P2,000 as start-up capital. You then
went to your closet and broke Mr. Piggy Bank which you have been saving for quite some time now. Alas! You only have
P800. You went to your Mama and asked her to give you P1,200 but she told you that she has been feeding you for far too
long. But don't give up hope yet, Mr. Bombay is just around the corner.
Assets = Liabilities
+ Equity
800Assets = 0
+ 800
Notes:
Your total assets are P800 - the amount of economic resources that you control.
You don't have any liability yet because you are still negotiating with Mr. Bombay.
Your equity is also P800. (800 assets-0 liabilities = 800 equity)
Notice that income is added while expenses are deducted in the equation. These are because income increases equity
while expenses decrease equity.
INCOME - is increases in economic benefits during the period in the form of increases in assets, or decreases in liabilities,
that result in increases in equity, excluding those relating to investments by the business owner.
EXPENSES - are decreases in economic benefits during the period in the form of decreases in assets, or increases in
liabilities, that result in decreases in equity, excluding those relating to distributions to the business owner.
Your profit for the period is P3,800 (P10,000 income minus P6,200 expenses). There is profit because income is greater
than expenses.
Income and expenses (or profit or loss) are closed to equity at the end of each accounting period. Thus, the adjusted
balance to equity is computed as follows:
Equity, beginning 800
Add: Income 10,000
Less: Expenses (6,200)
Equity, Ending 4,600
Your basic accounting equation at the end of the accounting period is as follows:
Think of this!
List down 10 words you remember about accounting and write your own definition about those words.
After you read and answer this module, go back to your list and check if you define it correctly. Good Luck!
THE ACCOUNT
An account is the basic storage of information in accounting. It is a record of the increases and decreases in a specific item
of asset, liability, equity, income or expense.
1. Account Title - describes the specific item of asset, liability, equity, income or expense.
2. Debit side - the left side of the account
3. Credit side - the right side of the account
1. ASSETS – are the resources you control that have resulted from past events and can provide you with economic
benefits.
2. LIABILITIES – are your present obligations that have resulted from past events and can require you to give up
economic resources when settling them.
3. EQUITY – is assets minus liabilities.
4. INCOME – are increases in economic benefits during the period in the form of inflows or enhancements of assets or
decreases of liabilities that result in increases in equity, other than those relating to investments by the business
owners.
Income includes both revenue and gains.
A. Revenue arises in the course of the ordinary activities of a business, e.g., sales and service fees.
B. Gains represent other items that meet the definition of income and may or may not arise in the course of the ordinary
activities of an entity.
5. EXPENSES – are decreases in economic benefits during the period in the form of outflows or depletions of assets or
increases of liabilities that result in decreases in equity, other than those relating to distributions to the business
owners.
B. Losses represent other items that meet the definition of expenses and may or may not arise in the course of ordinary
activities of the entity.
CHART OF ACCOUNTS
Account numbers are assigned to the accounts to facilitate recording, cross-referencing, and retrieval of information.
Although there is no standard way of assigning account numbers, account numbers should be assigned in a manner that
accounts are categorized logically.
Balance Sheet
ASSETS
1. Cash - includes money or its equivalent that is readily available for unrestricted use, e.g., cash on hand and cash in
bank.
2. Accounts receivable- receivables supported by oral or informal promises to pay.
3. Allowance for bad debts- the aggregate amount of estimated losses from uncollectible accounts receivable. Another
term is"allowance for doubtful accounts."
4. Notes receivable- receivables supported by written or formal promises to pay in the form of promissory notes.
5. Inventory- represents the goods that are held for sale by a business. For a manufacturing business, inventory also
includes goods undergoing the process of production and raw
materials that will be consumed in the production process.
6. Prepaid supplies - represents the cost of unused office and other supplies.
7. Prepaid rent - rent paid in advance.
8. Prepaid insurance-cost of insurance paid in advance
9. Land - the lot on which the building of the business has been constructed or a vacant lot which is to be used as future
plant site. Land is not depreciable.
10. Building - the structure owned by a business for use in its operations.
11. Accumulated depreciation - building - the total amount of depreciation expenses recognized since the building was
acquired and made available for use.
12. Equipment - consists of various assets such as:
a) Machineries and other factory equipment
b) Transportation equipment, e.g., vehicles, delivery trucks
c) Office equipment, e.g., desks, cabinets, chairs
d) Computer equipment, e.g., server, personal computers, laptops
e) Furniture and fixtures, e.g., desks, cabinets, movable partitions
13. Accumulated depreciation - equipment - the total amount of depreciation expenses recognized since the equipment
was acquired and made available for use.
LIABILITIES
1. Accounts payable - obligations supported by oral or informal promises to pay by the debtor.
2. Notes payable - obligations supported by written or formal promises to pay by the debtor in the form of promissory
notes.
3. Interest payable - interest incurred but not yet paid. Interest payable arises from interest-bearing liabilities. For
example you will incur interest on your bank loan.
4. Salaries payable -salaries already earned by employees but not yet paid by the business.
5. Utilities payable -utilities (e.g., electricity, water, telephone internet, cable TV, etc.) already used but not yet paid.
6. Unearned income - Items related to income that was collected in advance before they are earned. After the earning
process is completed, these 1tems are transferred to income.
2. Owner’s drawings - this account is used temporary withdrawals of the owner during the period. At the end of the
accounting period, any balance in this account is closed to the 'Owner's capital account.
Income Statement
INCOME
1. Service fees-revenues earned from rendering services (e.g. services of a spa, services of a beauty salon, etc.).
2. Sales -revenues earned from the sale of goods (e.g., sale of barbecue, souvenir items, etc.).
3. Interest income - revenues earned from the issuance of interest-bearing receivables.
4. Gains - income earned from the sale of assets (except inventory) or from enhancements of assets or decreases in
liabilities that are not classified as revenue.
EXPENSES
1. Cost of sales (or Cost of goods sold) - represents the value of inventories that have been sold during the accounting
period.
2. Freight-out - represents the sellers’ costs of delivering goods to customers. Other terms for freight-out are "delivery
expense, "transportation-out," and "carriage outwards”.
3. Salaries expense- represents the salaries earned by employees for the services they have rendered during the
accounting period.
4. Rent expense - represents the rentals that have been used up during the accounting period.
5. Utilities expense- represents the cost of utilities (e.g., electricity, water, telephone, internet, cable TV, etc.) that have
been used during the accounting period.
6. Supplies expense - represents the cost of supplies that have been used during the period.
7. Bad debt expense - the amount of estimated losses from uncollectible accounts receivable during the period. Other
term is "doubtful accounts expense”.
8. Depreciation expense- the portion of the cost of depreciable asset (e.g., building or equipment) that has been allocated
to the current accounting period.
9. Advertising expense-represents the cost of promotional or marketing activities during the period.
10. Insurance expense - represents the cost of insurance pertaining to the current accounting period.
11. Taxes and licenses- represents the cost of business and local taxes required by the government for the conduct of
business (e.g., mayor s permit, other percentage taxes, community taxes).
12. Transportation and travel expense - transportation represent the necessary and ordinary cost of employees getting
from one workplace to another which are reimbursable by the business.
13. Interest expense - represents the cost of borrowing money. It is the price that a lender charges a borrower for the use
of the lender's money. Other terms for interest expense are finance costs and borrowing costs.
14. Miscellaneous expense -represents various small expenditures which do not warrant separate presentation.
15. Losses - expenses which may or may not arise from the ordinary course of business activities. Losses may arise from:
a) Sale of assets, other than inventory, at a sale price that is less than the carrying amount.
b) Decreases in the value of assets due to destruction, damage, obsolescence and other changes in values caused
by market factors, e.g., loss on tire, earthquake, storm, and other calamities, decrease in the value of foreign
currencies held due to changes in exchange rates.
Application
MULTIPLE CHOICE
Instructions: Read each statement carefully. Write the letter of the correct answer.
1. Which of the following statements regarding accounting is incorrect?
a. All business transactions and events are recorded in the accounting books.
b. Although bookkeeping and accounting are interrelated, they are not the same.
c. The purpose of accounting is to provide information that is useful in making economic decisions.
2. Which of the following is not one of the necessary processes performed in accounting in order to provide information
that is useful to interested users?
a. Identifying
b. Summarizing
c. Recording
d. Counting
3. Accounting is described in various ways. Which of the following is not one of those descriptions?
a. Accounting is a process and a service activity.
b. Accounting is a social science and a practical art.
c. Accounting is the “language of business” because it is fundamental to the communication of financial information.
d. Accounting is the art of professionally stealing money and other evil purposes.
4. Accounting has a long history. Which of the following is incorrect regarding the history of accounting?
a. Accounting can be traced as far back as the prehistoric times.
b. Accounting is as old as civilization and has evolved in response to economic and social needs of men.
c. Fra Luca Pacioli is the mother of modern accounting.
d. All of these are correct.
11. This branch of accounting focuses on catering to the information needs of external users.
a. Management accounting
b. Financial accounting
c. Auditing
d. External accounting
12. These users need accounting information in order to regulate businesses that are within the scope of their legal
authority.
a. Employees
b. Creditors
c. Auditors
d. Government regulatory bodies or agencies
13. These users need accounting information in evaluating the stability of the business in so far as their job security,
future remuneration, and career growth and opportunities are concerned.
a. Employees
b. Creditors
c. Auditors
d. Regulatory authorities
15. Which of the following users of financial information is not considered a creditor of the business?
a. A loan provider, such as a bank
b. A supplier that sells goods to the entity on credit
c. A customer that buys goods from the entity on credit
d. A financing company that provides the entity with machineries on a “rent-to-own” basis
16. It is the branch of accounting that involves the careful analysis of economic events and other variables to understand
their impact on decisions.
a. Accounting education
b. Cost accounting
c. Accounting research
d. Tax accounting
17. It is the process of objectively evaluating evidence and expressing an opinion regarding the correspondence between
management’s assertions and established criteria.
a. Accounting education
b. Auditing
c. Accounting research
d. Tax accounting
18. You own a business. Your business is engaged in buying goods at a wholesale price and reselling them at retail prices
on Facebook. Your business is a
a. service business.
b. manufacturing business.
c. merchandising business.
d. monkey business.
19. An advantage of a sole proprietorship over the other forms of a business organization is
a. you are the only boss and you keep all the profits.
b. although it is easier to form, it may be more difficult to raise financing.
c. it has unlimited life.
20. Which of the following is not an advantage of a partnership over the other forms of business organization?
a. Compared to a sole proprietorship, risks are spread out over more than one owner.
b. Compared to a cooperative, the business organization is driven more towards the earning of profit.
c. Compared to a corporation, it is easier to form because of fewer legal requirements.
d. Compared to a corporation, it has an unlimited life and an unlimited liability.
Instructions: Read each statement carefully. Write the letter of the correct answer.
b. It is a social science.
3. What type of information needs of users do general purpose financial statements cater to?
a. common needs
b. specific needs
c. a and b
d. caring needs
4. Which of the following is least likely to be a decision made by an external user of the financial information of an
entity?
a. whether to buy, hold or sell investment in stocks
b. whether to extend loan or other forms of credit
c. whether to obtain additional financing
d. all of these are decisions that external users make
5. This branch of accounting deals with the preparation of general purpose financial statements.
a. General accounting
b. Management accounting
c. Financial accounting
d. Auditing
6. This type of business organization is created by a contractual agreement between two or more individuals.
a. corporation
b. cooperative
c.partnership
d. sole proprietorship
8. A disadvantage of a partnership is
a. better decision-"two heads are better than one."
b. business risk is assumed by more than one owner.
c. unlimited life.
d. unlimited liabilities of the partners.
9. This type of business organization has the tendency to become monopolistic. It can hamper the economy by
funneling wealth to only few individuals restricting the redistribution of wealth to majority of the members of the
society.
Instructions: Write true if the statement is correct and false if the statement is wrong.
1. Only accountable events are recorded in the books of accounts. Accountable events are those that affect the
accountant.
2. General purpose financial statements are the end product of the financial accounting process. These statements are
intended for internal users.
3. Accounting is the major facet of a business that is responsible in generating funds needed to support the business
operations.
4. A business transaction is considered an accountable event if it affects the assets, liabilities, equity, income or
expenses of the business.
5. You and your friend are members in a cooperative. You hold 1 share, while your friend holds 10,000 shares. During
members meetings, your friend can cast 10,000 votes, whereas you can only cast 1 vote.
6. Mr. A owns and manages a sole proprietorship business. The financial reports prepared tailored to Mr. A's financial
information needs are not general purpose financial statements.
7. Mr. A (in #6 above) accepts Mr. B as co-owner to his business. The business is now called A&B Co. The business of
Mr. A and Mr. B is a partnership.
8. Mrs. C is a taxi and jeepney operator. Mrs. C has three taxis and five jeepneys. Mrs. C's business is registered with
the DTI Mrs. C's business is a corporation.
9. Mr. A and Mr. B in #7 above decided to acquire the business of Mrs. C in #8. The newly formed business is called
ABC, Inc. ABC, Inc. is owned by Mr. A, Mr. B, Mrs. C and two drivers of Mrs. C. ABC, Inc. Issued shares of stocks to the
owners representing their ownership interest in the business. The newly formed business is a partnership.
10. The word “Inc.” in ABC, Inc. (see #9 above) is the abbreviation for incorporated, which connotes a corporate
business.
ASSESSMENT
Part 1: In a separate paper, answer the following cases. Write your answer legibly.
1. If you have total liabilities of P1,200 and equity of P800, how much are your total assets?
2. If you have total assets of P2,000 and equity of P800, how much are your total liabilities?
3. If you have total assets of P2,000 and total liabilities of P1,200, how much is your total equity?
4. If your total income of P5,000 and total expenses of P2,000, how much is your profit (or loss)?
5. If your total income of P6,000 and total expenses of P11,000, how much is your profit (or loss)?
6. If you have a total expenses of P2,000 and a profit of P3,000, how much is your total income?
Now let’s evaluate the level of competency you acquire throughout the topic.
Part 2: Computation
Instructions: In a separate paper, answer the following. Show your solution in appropriate
manner.
A. At the beginning of the year, the assets of Wakanda Forever Services were P120,000 and its owner’s equity was
P60,000. During the year, assets increased by P120,000 and liabilities increased by 20,000. What was the owner’s
equity at the end of the year?
B. The liabilities of Arctique Salon equal one-fourth of the total assets, and the owner’s equity is P360,000. What is
the amount of the liabilities?
C. Gentleman’s Choice have the total liabilities of P70,000 at the end of the year. If the owner paid the ¾ of the
liabilities before year-end using the business’ asset, how much will be the decrease in the asset due to payment of
liabilities?
ASSESSMENT 2
Part 1: In a separate paper, answer the following cases. Write your answer legibly. Identify the account title
affected in each scenario.
1. You are renting a space for your BBQ stand. The lease contract required you to pay P10,000 rent in advance.
2. Your electricity bill for the month of January amounted to P2,000. This bill is not yet paid.
3. After a month of operations, your business received electricity bill of P2,000 and water bill of P200.
4. You paid Justin Bieber P5,000 to endorse your BBQ business.
5. The customer with the 500 account receivable is broke. You have estimated that you can only collect P420 from
him.
6. You purchased a BBQ grill worth 1,000.
7. You expect to use the BBQ grill for 5 years.
8. The cost of the BBQ that was sold for P500 is 300.
9. You purchased pork worth P1,000 to be marinated and sold as BBQ.
10. Your BBQ grill was stolen.
Part 2- Effect of Transactions
Instructions: Using the scenarios in Application 1, indicate whether the assets (A), Liabilities (L) or Owner’s Equity (OE),
Income (I) and Expenses (E) increased (+), decreased (-), or did not change (o).
Resources
Millan, Z. V., Financial Accounting and Reporting (Fundamentals), 2019
Timeline!