ICT 141: Principles of Accounting First Semester 2021 -2022

Course Title: Principles of Accounting

I. Module 7: Accounting Equation

Estimated Time: 3 hours (Week 8)

II. Module Introduction/Rationale:

This module introduces you to applying the accounting equation.

III. Module Outcomes:

At the end of the topic the students must have:
1) Solve problems applying the accounting equation.
.

IV. Lesson One: Accounting Equation

V. Lesson Outcomes:
1) Solve problems applying the accounting equation.

Engage

What is an accounting equation? Can you share your idea? Go to www.menti.com and use the
designated code.

Explore

Click the link https://www.youtube.com/watch?v=B2T7j5IAOCI&t=1s,

https://www.youtube.com/watch?v=Eku2Qn7K758, and
https://www.youtube.com/watch?v=T2l9zvz5oAE

Explain

ACCOUNTING EQUATION
The accounting equation is the foundation of the double-entry bookkeeping system. In order to solve the
accounting equation, the following terms are defined.

ASSET –the economic that are useful or valuable quality e.g. money, land and building, vehicle,
equipment, furniture. petty cash and accounts receivable

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 ICT 141: Principles of Accounting First Semester 2021 -2022

LIABILITY – the state of being legally obliged and responsible, also called a financial obligation of the
business

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 ICT 141: Principles of Accounting First Semester 2021 -2022

OWNER’S EQUITY/CAPITAL – the capital contribution of the owner or the residual claims of the income
of the owner in the business e.g. capital, drawings,

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 ICT 141: Principles of Accounting First Semester 2021 -2022

CAPITAL – money put into the business

DRAWINGS -the owner takes money or things out of the business

INCOME – can be income from sales, services rendered and interest income

REVENUE – the entire amount of income before any deductions are made

EXPENSES – amount paid for goods and services that may be currently tax deductible
- Purchases from stock, inventory, goods and merchandise
- Others include utilities like lights and water, salaries and wages, stationery or supplies like
paper and interest expense

SETTLEMENT DISCOUNT- can be settlement discount received or granted

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 ICT 141: Principles of Accounting First Semester 2021 -2022

ASSET = LIABILITY + OWNER’S EQUITY/CAPITAL

A = L + EQ

ASSET - LIABILITY = OWNER’S EQUITY/CAPITAL

A - L = EQ

ASSET OWNER’S EQUITY/CAPITAL = LIABILITY

A - EQ = L

Example:

Show that the accounting equation is satisfied after taking into consideration each of the following
transactions in the books of Mr. N

1. Started business with capital 1,00,000

Capital + Liabilities = Assets
1,00,000 + 0 = 1,00,000 (Cash)

2. Bought furniture 25,000

Capital + Liabilities = Assets
1,00,000 + 0 = 75,000 (Cash)
+ 25,000 (Furniture)

3. Bought goods for cash 20,000

Capital + Liabilities = Assets
1,00,000 + 0 = 55,000 (Cash)
+ 25,000 (Furniture)
+ 20,000 (Goods)

4. Bought goods from Rafael on Credit 5,000

Capital + Liabilities = Assets
1,00,000 + 5,000 (Rafael) = 55,000 (Cash)
+ 25,000 (Furniture)
+ 25,000 (Goods)

5. Sold goods for cash for 15,000

Capital + Liabilities = Assets
1,00,000 + 5,000 (Rafael) = 55,000 (Cash)
+ 25,000 (Furniture)
+ 25,000 (Goods)

6. Sold goods to Jay on credit 8,000

Capital + Liabilities = Assets
1,00,000 + 5,000 (Rafael) = 70,000 (Cash)

+ 25,000 (Furniture)
+ 2,000 (Goods)
+ 8,000 (Jay)

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 ICT 141: Principles of Accounting First Semester 2021 -2022

7. Paid cash to Rafael 4,000

Capital + Liabilities = Assets
1,00,000 + 1,000 (Rafael) = 66,000 (Cash)
+ 25,000 (Furniture)
+ 2,000 (Goods)
+ 8,000 (Jay)

8. Received cash from Rafael 5,000

Capital + Liabilities = Assets
1,00,000 + 1,000 (Rafael) = 71,000 (Cash)
+ 25,000 (Furniture)
+ 2,000 (Goods)
+ 3,000 (Jay)

9. Paid Cash into Bank 25,000

Capital + Liabilities = Assets
1,00,000 + 1,000 (Rafael) = 46,000 (Cash)
+ 25,000 (Furniture)
+ 2,000 (Goods)
+ 3,000 (Jay)
+ 25,000 (Bank)

10. Withdrawn from bank 10,000

Capital + Liabilities = Assets
1,00,000 + 1,000 (Rafael) = 56,000 (Cash)
+ 25,000 (Furniture)
+ 2,000 (Goods)
+ 3,000 (Jay)
+ 15,000 (Bank)

Elaborate

What are your assets and liabilities as a student?

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 ICT 141: Principles of Accounting First Semester 2021 -2022

Evaluate
Worksheet No. 10

Name: ____________________________________________________________
Course, Year and Section:_______________________________ Date: __________
Answer as directed. Write your answer on the space provided.
Problem:

Following are the accounting transactions relating to Mr. P's business. Use the accounting equation to
show their effect on his assets, liabilities and capital.

1) Commenced business with a Capital of 50,000

2) Bought Machinery for cash 10,000
3) Purchased goods for cash 15,000
4) Purchased goods from A on credit 5,000
5) Sold goods for cash 10,000
6) Paid to A 2,000
7) Sold goods to B on credit 3,000
8) Paid into Bank 6,000
9) Paid to A by check 1,000
10) Received from B a check for 2,000

References:

 Rabot, Bernabe Donato Jr. and Malco, Ma. Theresa De Francesca. Accounting Skills and
Bookkeeping Principles Workbook for K-12 Senior High School. (2019) Great Books Trading.
 Reyes, Virgilio D. The Fundamentals In Accounting 2018 th Edition (2018). GIC Enterprises Co, Inc

Online References:
https://www.youtube.com/watch?v=B2T7j5IAOCI&t=1s
https://www.youtube.com/watch?v=Eku2Qn7K758
https://www.youtube.com/watch?v=T2l9zvz5oAE

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