UNIVERSITY OF SAINT LOUIS

Tuguegarao City

SCHOOL OF ACCOUNTANCY, BUSINESS and HOSPITALITY

First Semester
Academic Year 2021-2022

ONLINE LEARNING MODULE

ACCT 1026- Financial Accounting and Reporting

Lesson 1: The Accounting Equation

REMINDERS:

Get Involved. USL expects you to do the following:

 Lessons will be uploaded every Monday, and submission will be every Friday of the week.
 Comply with all requirements (written outputs, projects/performance tasks examinations and the like.)
 Turn in learning tasks on time to avoid backlogs.
 For any query that you want to make about your lessons or procedures in school, contact us through our
messenger group chat, LMS chat boxes or feel free to contact us through the following during our
consultation hours

mentor Class code Facebook name e-mail Cell number

Sir Jerome
Ma’am Belle 435. 436, Belle Siazon bellesiazon56@gmail.com 0917 4229641
441
Ma’am Diane

Remember:

Expect to do a lot of reading, problem-solving activities and other self-directed activities. Varied assessments or
activities will be given. At the outset, I am strictly warning you against copying your classmates’ output without
exerting any effort. We will be asking you to make a Journal of Learning (similar to your notebook during face
to face classes) to record and assess the extent of learning during the term.

This Week’s Time Table: (August 17 – 21, 2021)

For this week, the following shall be your guide for the different lessons and tasks that you need to accomplish.
Be patient, read them carefully before proceeding to the tasks expected of you.
HAVE A FRUITFUL LEARNING EXPERIENCE 😊

Date Topics Activities or Tasks

August 17 I. The accounting equation Read Lessons from books and handouts
August 18 a. The basic accounting equation Online discussion
August 19 b. The expanded accounting equation Accomplish the drills and exercises
c. Applications of the accounting
August 20 equation
Submission of Assessments
Participate in the scheduled Quiz
Learning 1. Elaborate the accounting equation
Outcomes: 2. Perform operations involving simple cases with the use of accounting equation
ACCT 1026 – Financial Accounting and Reporting | 1
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LEARNING CONTENT

Good Morning and Welcome to our class.

Our course for this semester is Financial Accounting and Reporting, the foundation of all accounting related
courses.

Before we start. Let us first concentrate on basic accounting equation.

What is the Accounting Equation?

An accounting transaction is a business activity or event that causes a measurable change in the accounting
equation.

The accounting equation is a basic principle of accounting and a fundamental element of the balance sheet.
The equation is as follows:

Assets = Liabilities + Equity

This equation sets the foundation of double-entry accounting and highlights the structure of the balance sheet.
Double-entry accounting is a system where every transaction affects both sides of the accounting equation.

For every change to an asset account, there must be an equal change to a related liability or equity account. It
is important to keep the accounting equation in mind when performing journal entries.

NOTE: If an entity keeps accurate records, the accounting equation will always be "in balance," meaning the left
side should always equal the right side. The balance is maintained because every business transaction affects
at least two of an entity's accounts. For example, when an entity borrows money from a bank, the entity's assets

ACCT 1026 – Financial Accounting and Reporting | 2

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will increase and its liabilities will increase by the same amount. When an entity purchases inventory for cash,
one asset will increase and one asset will decrease. Because there are two or more accounts affected by every
transaction, the accounting system is referred to as double-entry accounting.

The balance sheet is broken down into three major sections and their various underlying items: Assets,
Liabilities and Equity.

ASSETS- are future economic benefits controlled by an organization/entity as a result of past transactions or
other past events.

-reflect the total value of the property that the business has, and which is in its turnover. In other words, it is what
it owns.

LIABILITIES- Liabilities are future sacrifices of economic benefits that an organization is presently obliged to
make to other organizations or individuals as a result of past transactions or events.

-reflect the size of the financing of an organization’s assets by third parties, banks, and private financial
institutions. This is what the company owes.

EQUITY- represents the residual (what is left) once all fixed claims have been satisfied or simply “assets
less/minus liabilities”.

-equity characterizes the value of investments made in this organization by its owner/s

Example 1:

Juan dela Cruz started his Coffee Shop business by investing his Cash savings amounting to P 500,000.00 and
borrowed P250,000.00 from ABC Bank.

Assets= Cash P 500,000.00 (owned) Assets = Liabilities + Equity

P 500,000.00 = P 250,000.00 + P 250,000.00
Liabilities= Loan P 250,000.00 (owed)
Assets - Liabilities= Equity
Equity= Assets – Liabilities (P 250,000.00) P 500,000.00 – P 250,000.00 = P 250,000.00

Assets – Equity = Liabilities

P 500,000.00 – P 250,000.00 = P 250,000.00

ACCT 1026 – Financial Accounting and Reporting | 3

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THE EXPANDED ACCOUNTING EQUATION

The expanded accounting equation provides more details for the owner's equity amount shown in the basic
accounting equation. The expanded accounting equation for a sole proprietorship is: Assets = Liabilities +
Equity (Owner's Capital) + Revenues – Expenses – Owner's Draws.

The expanded accounting equation allows you to see separately (1) the impact on equity from net income
(increased by revenues, decreased by expenses), and (2) the effect of transactions with owners (draws,
dividends, sale or purchase of ownership interest).

EQUITY- is the residual interest in the assets of the entity after deducting all the liabilities (IASB Framework).

- is what the owners of an entity have invested in an enterprise. It represents what the business
owes to its owners. It is also a reflection of the capital left in the business after assets of the entity
are used to pay off any outstanding liabilities.

ACCT 1026 – Financial Accounting and Reporting | 4

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REVENUE- is the income generated from normal business operations and includes discounts and deductions
for returned merchandise. It is the top line or gross income figure from which costs are subtracted to determine
net income.

- If the revenues earned are a main activity of the business, they are considered to be operating
revenues. If the revenues come from a secondary activity, they are considered to be non-
operating revenues.
- Normally increases ASSETS.

EXPENSE- An expense is the cost of operations that a company incurs to generate revenue. As the popular
saying goes, “it costs money to make money.”

- There are two main categories of business expenses in accounting: operating expenses and non-
operating expenses.
- Normally decreases ASSETS.

***The difference between revenue and expenses represents profit or loss.

- If revenue is greater than expenses, the difference is profit

- If revenue is less than expenses, the difference is loss

Example 2:

Juan dela Cruz, on the first month of operating his Coffee Shop, earned a Revenue (received cash) of P
50,000.00 and incurred total expenses (paid cash) of in the amount of P 30,000.00 (Wages of crew/staff/cashier,
Supplies, Rent, Utility Expenses).

Assets= P 500,000.00

Liabilities= P 250,000.00

Equity= P 250,000.00

ACCT 1026 – Financial Accounting and Reporting | 5

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Revenue= P 50,000.00

Expenses= P 30,000.00

ASSETS = LIABILITIES + EQUITY + REVENUE - EXPENSES

Example 1- Juan dela Cruz P 500,000.00 P 250,000.00 P 250,000.00 -0- -0-

started his Coffee Shop business
by investing his Cash savings
amounting to P 500,000.00 and
borrowed P250,000.00 from ABC
Bank.

Example 2- Juan dela Cruz, on P 50,000.00 P 50,000.00

the first month of operating his
Coffee Shop, earned a Revenue (P 30,000.00) P 30,000.00
(received cash) of P 50,000.00
and incurred total expenses
(paid cash) of in the amount of P
30,000.00 (Wages of crew/ staff/
cashier, Supplies, Rent, Utility
Expenses).

P 520,000.00 P 250,000.00 P 250,000.00 P 50,000.00 P 30,000.00

P 520,000.00 P 250,000.00 P 270,000.00

Meantime, we end our lecture here. Within the week, an online discussion will be conducted to expound the
topic. Have a fruitful learning.

*** END of LESSON 1***

REFERENCES:

Textbook:
Millan, Z. V. (2020). Financial Accounting and Reporting (Fundamentals). Baguio City: Bandolin
Enterprise.

References:
1. Ballada, W. (2019). Basic Financial Accounting and Reporting. Manila: DomDane Publishers.
2. Cabrera, E.(2017) Fundamentals of Accounting Volume I, GIC Enterprises & Co., Inc., Manila
3. Financial Reporting Standard Council (2017). Philippine Financial Reporting Standards. PICPA
4. Valencia, E. and Roxas, G. (2017), Basic Accounting, Valencia Educational Supply
5. Valix, C. and Peralta, J. (2018). Financial Accounting Volume I GIC Enterprises & Co., Inc., Manila
6. Valencia, E. and Roxas, G. (2017), Partnership and Corporation Accounting, Valencia Educational Supply

Electronic Resource:
1. Accounting Basic https://www.accountingcoach.com/accounting-basics/explanation
2. Basic Accounting. https://www.bizfilings.com/toolkit/research-topics/finance/basic-accounting/the-
accounting-system-and-accounting-basics
3. Basic accounting and bookkeeping lessons, http://www.moneyinstructor.com/accounting.asp
ACCT 1026 – Financial Accounting and Reporting | 6
This document is a property of University of Saint Louis Tuguegarao. It must not be reproduced
nor transmitted in any form, in whole or in part, without expressed written permission.
 4. Financial Accounting. https://www.accountingcoach.com/financial-accounting/explanation
5. Accounting Tutorials for Beginners. https://www.guru99.com/accounting.html
6. https://corporatefinanceinstitute.com/resources/knowledge/accounting/accounting-equation/
7. https://bobsteelecpa.com/accounting-equation-account-types-and-the-double-entry-accounting-equation/
8. https://www.bookstime.com/what-is-the-accounting-equation
9. https://www.accountingcoach.com/blog/expanded-accounting-equation
10. https://accounting-simplified.com/equity.html
11. https://www.investopedia.com/
12. https://courses.lumenlearning.com/sac-finaccounting/chapter/the-basic-accounting-equation/

ASSESSMENTS:

PARTICIPATION (for recitation purposes)

DRILLS/ ACTIVITIES/ APPLICATION

EVALUATION (Quiz)

ASSIGNMENT

ACCT 1026 – Financial Accounting and Reporting | 7

This document is a property of University of Saint Louis Tuguegarao. It must not be reproduced
nor transmitted in any form, in whole or in part, without expressed written permission.