BYRON L.

DESEMBRANA
Instructor
+639194148501/byron.desembrana@gmail.com

LEARNING ACTIVITY #8
NAME: JOHN KEVIN L. AZARES GRADE / SCORE:____________
COURSE AND YEAR:______BSED IV___________________________ DATE:__OCTOBER 21,2021_____
SUBJECT: FINANCIAL LITERACY FOR EDUCATORS________________

PLEASE SHADE THE APPROPRIATE TYPE OF ACTIVITY:

 Concept Notes  Laboratory Report  Formal Theme  Practical Activity
 Exercise / Drill  Drawing / Art  Informal Theme  Others:
___________________

ACTIVITY TITLE: Accounting Equation

LEARNING TARGETS: Determine the Normal Balance of an Account
REFERENCE(S) Basic Accounting by Win Lu Ballada
(Title, Author, Pages)

CONCEPT NOTES AND EXAMPLES:

EXPANDED ACCOUNTING EQUATION

ASSETS = LIABILITIES + OWNER’S EQUITY (+ income – expenses – withdrawal or drawing)

(LEFT SIDE) (RIGHT SIDE)
(DEBIT) (CREDIT)

Note that the assets are on the left side of the expanded accounting equation opposite the liabilities and
owner’s equity. This explains why increases and decreases in assets are recorded in the opposite manner as
liabilities and owner’s equity are recorded. The equation also explains why liabilities and owner’s equity follow
the same rules of debit and credit. The logic of debiting and crediting is related to the accounting equation.
Transactions may require additions to both sides (left and right sides), subtractions from both sides (left and
right sides), or an addition and subtraction on the same side (left or right side), but in all cases the equality must
be maintained.
It is customary to place “Liabilities” before “Capital” in the accounting equation because creditors have
preferential rights to the assets. Owner’s investments and revenues increase owner’s equity (credit). Owner’s
drawings and expenses decrease owner’s equity (debit). Purpose of earning revenues is to benefit the owner(s).
Effect of debits and credits on revenue accounts is the same as their effect on Owner’s Capital.
Expenses have the opposite effect: expenses decrease owner’s equity.

RECORDING CHANGES IN REVENUES AND EXPENSES

1. Increase in revenue is recorded on the right side (credit) and decrease on the left side (debit). This is because
revenue increases owner’s equity and increase in owner’s equity is on the credit side.
2. Increase in expenses is recorded on the left side (debit) and decrease on the right side (credit). This is
because expenses decreases owner’s equity and decrease in owner’s equity is on the debit side.

RECORDING WITHDRAWALS BY THE OWNER

WITHDRAWALS are distribution of assets to the owners for his personal use. Just as an investment
increases owner’s equity, withdrawals decreases it. It has the same effect with the expenses. Withdrawals are
shown directly as a reduction of the owner’s capital account balance by entering the amount on the debit side of
the T-account. A clearer record of the withdrawal is available if a separate drawing account is used to record all
amounts withdrawn. The drawing account is increased by debits and decreased by debit.
 BYRON L. DESEMBRANA
Instructor
+639194148501/byron.desembrana@gmail.com

EXERCISE: Discuss the importance of determining the normal balance of an account.

Knowing what the normal balance for a specific account should be allows you to easily identify data entry errors,
that’s is why it is important to determine them. The normal balance of an account is the positive or increasing
side of the account. The debit side is the normal balance for asset and expense accounts, while the credit side is
the normal balance for income, equity, and liability accounts. Hence, if the account is not normal balance
meaning there’s something wrong, error or mistakes to the account. Normal balance is an indication if you need
correction with the account.
 BYRON L. DESEMBRANA
Instructor
+639194148501/byron.desembrana@gmail.com