Module III: The Accounting Equation

Application:
Please answer/accomplish the following activity/ies.

Instruction: Compute for the missing amounts.

ASSETS LIABILITIES EQUITY INCOME EXPENSES

1. 920,000 710,000 290,000 440,000 ?
2. 870,000 310,000 240,000 ? 150,000
3. 890,000 240,000 ? 600,000 190,000
4. 740,000 ? 170,000 1,900,000 1,860,000
5. ? 780,000 470,000 680,000 490,000

Feedback:
I. Multiple Choice:
1. Which of the following increases equity?
a. Incurring a liability c. Incurring a loss
b. Income d. b or c
2. Which of the following is not a correct variation of the basic accounting equation?
a. Assets = Liabilities + Equity
b. Assets - Liabilities = Equity
c. Assets - Equity = Liabilities
d. Assets + Liabilities = Equity

Use the following information for the questions 3 to 10:

Papa gives you a weekly allowance of P20. In the next questions, we will treat your weekly allowance
as your weekly income and the amount you spend out of the allowance as your expenses. Any
unspent (savings) represents your profit
3. You spent P18. Which of the following statements is correct?
a. Your profit for the week is P20.
b. You incurred a loss P18.
c. Your profit for the week is P2.
d. Your incurred a loss of P2 for the week.
4. To earn a profit of P10 in a month, your weekly spending should be (use 4 weeks a month)
a. P17.5 c. P70
b. P71.5 d P35
5. You spent all of your allowance for the week. In addition, you purchased 1 balut worth P16 from
Manong Balut, on credit. You told Manong Balut you will pay him next week. Under the accrual
basis of accounting, your profit (loss) for the current week is
a. P16 c. (P16)
 b. P0 d P36
6. If your total spending for the year was P936, your profit (loss) would be (use 52 weeks per year)
a. P0 c. P1,040
b. P104 d P936
7. On day 1 of the first week of the year, your accounting equation will show which of the
following? (Note: The allowance is nonrefundable to Papa)
ASSET LIABILITIES EQUITY
a. P20 0 P20
b. P20 P20 0
c. P20 P20 P20
d. 0 0 0
8. You spent all your allowance for the first week. Your accounting equation at the end of the Week
1 will show which of the following?
ASSET LIABILITIES EQUITY
a. P20 0 P20
b. P20 P20 0
c. P20 P20 P20
d. 0 0 0
9. You spent only P18 of your allowance for the first week. Your accounting equation at the end of
Week1 will show which of the following?
ASSET LIABILITIES EQUITY
a. P20 0 P20
b. P18 0 P18
c. P2 0 P2
d. 0 0 0
10. Your accounting equation at the end of the week for #5 above (‘balut’) will show which of the
following. (Note: you already ate the ‘balut’ and now it’s gone.)
ASSET LIABILITIES EQUITY
a. P16 P16 0
b. P16 0 P16
c. 0 P16 (P16)
d. 0 0 0

II. Presented below are selected transactions of RDV Accounting Services. Give the effect of the three
elements by using “+” if the account has increased, “-“ if the account has decreased, and “NC” if the is no
change in the account.

Transactions Assets Liabilities Equity

1. RDV invested cash in the business

2. Bought computer equipment from Octagon on credit

3. Purchased office supplies in cash from Pandayan

4. Returning defective office supplies purchased above

5. Bought furniture for cash

6. Settled the account to Octagon in full

7. Borrowed money from Chinabank

8. Bought additional office supplies on credit from XYZ

merchandising.

9. Paid one year insurance policy

10. Paid the account with XYZ in full