Accounting Equation

Mohammed Moin Uddin Reza Nadim

Bangladesh University of Professionals (BUP)
 Basic Accounting Equation

Assets = Liabilities + Owner’s Equity

A = L + OE
 Problem
Presented below is the basic accounting equation. Determine the
missing amounts.
Assets = Liabilities + Owner’s Equity
90,000 50,000 ?
? 40,000 70,000
94,000 ? 53,000
 Solution

Assets = Liabilities + Owner’s Equity

90,000 50,000 40,000
1,10,000 40,000 70,000
94,000 41,000 53,000
 Problem
At the beginning of the year, Danks Company had total assets of 8,00,000
and total liabilities of 3,00,000. Answer the following questions.
(a) If total assets increased 1,50,000 during the year and total liabilities
decreased 80,000, what is the amount of owner’s equity at the end of
the year? 7,30,000
(b) During the year, total liabilities increased 1,00,000 and owner’s equity
decreased 70,000. What is the amount of total assets at the end of the
year? 8,30,000
(c) If total assets decreased 80,000 and owner’s equity increased 1,20,000
during the year, what is the amount of total liabilities at the end of the
year? 1,00,000
 Solution

Beginning 8,00,000 3,00,000 5,00,000

a. + 1,50,000 - 80,000 + 2,30,000 7,30,000
b. + 30,000 +1,00,000 - 70,000 8,30,000
c. - 80,000 - 2,00,000 + 1,20,000 1,00,000
 Expanded Accounting Equation

Assets = Liabilities + Owner’s Capital - Owner’s Drawing

+ Revenues - Expenses
A=L+C–D+R-E
 Problem
Square Unilever Pran Fresh
January 1:
Assets 80,000 90,000 (g) 1,50,000
Liabilities 48,000 (d) 80,000 (j)
Owner’s Equity (a) 40,000 49,000 90,000
December 31:
Assets (b) 1,12,000 1,80,000 (k)
Liabilities 60,000 72,000 (h) 1,00,000
Owner’s Equity 50,000 (e) 82,000 1,51,000
Owner’s Equity Changes in the Year:
Additional Investments (c) 8,000 10,000 15,000
Drawings 15,000 (f) 12,000 10,000
Total Revenues 3,50,000 4,10,000 (i) 5,00,000
Total Expenses 3,33,000 3,85,000 3,50,000 (l)
 Solution
Square:
Assets = Liabilities + Owner’s Equity
January 1 80,000 48,000 32,000
December 31 1,10,000 60,000 50,000

a. 32,000 ; b. 1,10,000
c. Opening Equity + Add. Inv. – Drawings + Rev – Exp = Closing Equity
= 32,000 + - 15,000 + 3,50,000 – 3,33,000 = 50,000
= 16,000
Do the Rest Unilever, Pran and Fresh by yourself
 Problem
Use the expanded accounting equation to answer each of the following
questions.
(a) The liabilities of Falk Company are 90,000. Owner’s capital account is
150,000; drawings are 40,000; revenues, 450,000; and expenses,
320,000. What is the amount of Falk Company’s total assets?
(b) The total assets of Pierogi Company are 57,000. Owner’s capital account
is 25,000; drawings are 7,000; revenues, 52,000; and expenses, 35,000.
What is the amount of the company’s total liabilities?
(c) The total assets of Yanko Co. are 600,000 and its liabilities are equal to
two-thirds of its total assets. What is the amount of Yanko Co.’s owner’s
equity?
 Solution
a.
Assets = Liabilities + Capital - Drawings + Revenues - Expenses
= = 90,000 + 1,50,000 – 40,000 + 4,50,000 – 3,20,000
= 3,30,000

Using the same equation, do the rest (b) and (c)