ACCOUNTING

EQUATION
JENILUZ MAMAYSON
ACCOUNTING EQUATION
Accounting Equation is a mathematical expression which states that the total
amount of assets is EQUAL to the total amount of liabilities PLUS the total amounts of
capital.
It is also known as the balance sheet equation, the accounting equation formula is
Assets = Liabilities + Equity.
It represents the relationship between the assets, liabilities, and owner's equity of
a person or business.

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ACCOUNTING EQUATION
In this equation:

✔ The assets represent the money and properties owned by the business.
✔ The liabilities represent debts or obligations to the creditors for having
extended credit to the business. (Claims of the creditors in the assets)
✔ The capital represents the money or properties invested by the owner in
the business.
✔ The equity represents financial interest or residual claim of the owner in
the assets of the business after deducting all liabilities. (Claims of the
creditors in the assets)

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ACCOUNTING EQUATION
As to the financial interest of the owner, the increases and
decreases in the capital may be summarized as follows:

EFFECT IN CAPITAL EQUITY

Investments of the owner INCREASE
(Owner’s Equity)
Withdrawals of the owner DECREASE
(Owner’s Drawings)
Income from Operations INCREASE
(Income\Revenue)
Expenses from Operations DECREASE
(Expenses)
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 EXPANDED ACCOUNTING EQUATION

Considering all of the above, the basic

accounting equation may be stated in its
expanded form.

The expanded accounting equation is the

Place your screenshot here
same as the common accounting
equation but decomposes equity into
component parts.

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BASIC AND EXPANDED ACCOUNTING EQUATION

The accounting equation can be explained with how resources (assets) of a

company are being acquired. Theses resources are to be used in their
business operations.

EXTERNAL FINANCING , INTERNAL FINANCING, means resources

meaning resources are are acquired by means of investment of
acquired on credit from the the owner. (CAPITAL/EQUITY) and by the
creditors. (LIABILITIES) results of the operations of the business
(INCOME).

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BANK,VENDOR OWNERS
ACCOUNTING EQUATION
SAMPLE COMPUTATIONS
 BASIC ACCOUNTING EQUATION

ASSETS LIABILITIES CAPITAL/

EQUITY

1. Place your₱250,000
₱300,000 screenshot here ?
2. ₱520,000 ? ₱150,000
3. ? ₱320,000 ₱460,000

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 ASSETS LIABILITIES CAPITAL/EQUITY

1. ₱300,000 ₱250,000 ?

A=L+C C=A-L

C = ₱ 300,000 - ₱ 250,000

C = ₱ 50,000

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 ASSETS LIABILITIES CAPITAL/EQUITY

2. ₱520,000 ? ₱150,000

A=L+C L=A-C

L = ₱ 520,000 - ₱ 150,000

L = ₱ 370,000

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 ASSETS LIABILITIES CAPITAL/EQUITY

3. ? ₱320,000 ₱460,000

A=L+C A=L+C

A = ₱ 320,000 + ₱ 460,000

A = ₱ 780,000

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 BASIC ACCOUNTING EQUATION

At the end of the business

operations, ML Corporation
has a total assets
Place your screenshot here
amounting to ₱412,000.
Liabilities still unsettled
amount to ₱94,800.
Required: How much is the
Residual interest of the
owner? 12
 BASIC ACCOUNTING EQUATION

The business owes its

creditors a total amount of
₱87,000. If the business has a
total capital amounting to
Place your screenshot here

₱131,600, what is the total

amount of business ASSETS?

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 EXPANDED ACCOUNTING EQUATION

ASSETS LIABILITIES EQUITY REVENUES EXPENSES

1 ₱180,000 ₱80,000 ₱40,000 ₱210,000 ?

2 ₱940,000 ₱280,000 ₱140,000 ? ₱380,000

Place your screenshot here
3 ₱280,000 ₱20,000 ? ₱60,000 ₱80,600

4 ₱360,000 ? ₱70,000 ₱180,000 ₱60,000

5 ? ₱880,000 ₱470,000 ₱680,000 ₱490,000

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 ASSETS LIABILITIES EQUITY REVENUES EXPENSES

1 ₱180,000 ₱80,000 ₱40,000 ₱210,000 ?

₱ 180,000 = ₱ 80,000 + ₱ 40,000 + ₱210,000 - E

₱ 180,000 = ₱ 330,000 - E

₱ 180,000 = ₱ 330,000 - ₱ 150,000

₱ 180,000 = ₱ 180,000
E = ₱ 150,000
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 ASSETS LIABILITIES EQUITY REVENUES EXPENSES

2 ₱940,000 ₱280,000 ₱140,000 ? ₱380,000

₱ 940,000 = ₱ 280,000 + ₱ 140,000 + R - ₱ 380,000

₱ 940,000 = ₱ 40,000 + R

₱ 940,000 = ₱ 40,000 + ₱ 900,000

₱ 940,000 = ₱ 940,000
R = ₱ 900,000
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 ASSETS LIABILITIES EQUITY REVENUES EXPENSES

3 ₱280,000 ₱20,000 ? ₱60,000 ₱80,000

₱ 280,000 = ₱ 20,000 + C + ₱ 60,000 - ₱ 80,000

₱ 280,000 = ₱ 0 + C

₱ 280,000 = ₱ 0 + ₱ 280,000

₱ 280,000 = ₱ 280,000
C = ₱ 280,000
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 ASSETS LIABILITIES EQUITY REVENUES EXPENSES

4 ₱360,000 ? ₱70,000 ₱180,000 ₱60,000

₱ 360,000 = L + ₱ 70,000 + ₱ 180,000 - ₱ 60,000

₱ 360,000 = L + ₱ 190,000

₱ 360,000 = ₱ 170,000 + ₱ 190,000

₱ 360,000 = ₱ 360,000
L = ₱ 170,000
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 ASSETS LIABILITIES EQUITY REVENUES EXPENSES

5 ? ₱880,000 ₱470,000 ₱680,000 ₱490,000

₱ A = ₱ 880,000 + ₱ 470,000 + ₱ 680,000 - ₱ 490,000

₱ A = ₱ 1,540,000

₱ 1,540,000 = ₱ 1,540,000
A = ₱ 1,540,000

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 CASE A
Pangs, Capital (Beginning) ₱ 112,496
Additional Investments ₱ 36,250
Pangs, Drawings ₱ (12,460)
Total Income ₱ ?
Total Expenses ₱ (97,643)
Pangs, Capital (Ending) ₱ 302,561

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 BASIC AND
EXPANDED
CASE A
Pangs, Capital (Beginning)
ACCOUNTING
₱ 112,496
Additional Investments
EQUATION
₱ 36,250
Pangs, Drawings ₱ (12,460)
Total Income ₱ ?
Total Expenses ₱ (97,643)
Pangs, Capital (Ending) ₱ 302,561

Pangs, Capital (Beginning) ₱ 112,496

Add: Additional Investments ₱ 36,250
Less: Pangs, Drawings ₱ (12,460)
Less: Total Expenses ₱ (97,643)
Total ₱ 38,643

REQUIRED PANGS CAPITAL ENDING IS ₱ 302,561 21

₱ 302,561 - ₱ 38,643
I = ₱ 263,918
 BASIC AND EXPANDED
ACCOUNTING
+ -
EQUATION
(SQUEEZE METHOD) - +
CASE A
Pangs, Capital (Beginning) ₱ 112,496 2ND

Additional Investments ₱ 36,250 3RD

Pangs, Drawings ₱ (12,460) 4TH
Total Income ₱ ?
Total Expenses ₱ (97,643) 5TH

Pangs, Capital (Ending) ₱ 302,561 1ST

₱ 302,561 - ₱ 112,496 - ₱ 36,250 + ₱ 12, 460 + ₱ 97,643

= ₱ 263,918 22

BEGINNING: ₱3,000,000 = ₱500,000 + ₱ ?
₱3,000,000 = ₱500,000 + ₱ 2,500,000
ENDING: ₱3,000,000 = ₱500,000 + ₱ 2,500,000
DOUBLED INCREASED BY 50%
₱6,000,000 = ₱2,250,000 + ₱ 3,750,000
ACCOUNTING EQUATION
PROBLEM SOLVING
At the beginning of the year,
the assets of the company is
₱3,000,000 and the liabilities
is ₱500,000. During the year,
the assets doubled while the
equity is increased by 50%.
How much is the ASSETS,
LIABILITIES and EQUITY at
the end of the year?
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“ THANKS!

ANY QUESTIONS?

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