BASIC ACCOUNTING EQUATION

ASSETS= LIABILITIES + OWNER’S EQUITY( OR CAPITAL)

ASSETS are resources controlled by the business as a result of past transactions and events
from which future economic benefits are expected to the business. These are anything of value
that is owned by the business. They are classified into two: Current Assets and Non- current
assets.

CURRENT ASSETS are expected to be realized in cash within one year from the reporting
date or the normal operating cycle, whichever is longer.
NON- CURRENT ASSETS are expected to be realized into cash in more than one year.

Examples:

CASH - this includes cash on hand(bills, coins, checks, money orders or bank drafts), cash in
bank(savings account or checking account and cash fund like petty cash fund or payroll fund.

ACCOUNTS RECEIVABLE - this represents the amount of money owed by the customers to
the business for the service rendered or for the selling of goods.

NOTES RECEIVABLE- this represents the amount of money owed by the customer or debtor
as evidenced by a promissory note.

INVENTORIES - this represents assets held for sale in the ordinary course of business, in the
process of production for sale or in the form of material;s or supplies to be consumed in the
production of process or rendering services.
OFFICE SUPPLIES- LIKE BOND PAPER, PEN ETC.

UNUSED SUPPLIES - this represents supplies which remain unused at the end of the
accounting period.

PREPAID RENT- this refers to an advance payment by the business to cover future rental
payment.

EQUIPMENT - this represents manual or automated machines used in the business like
photocopy machines, delivery vehicles, machineries, etc.

FURNITURE AND FIXTURES - this refers to assets such as tables, chairs etc.

BUILDING - this refers to physical structure owned and used by the business to conduct its
business operations.
LAND- this refers to a physical site owned by the business where the building is located. It is
not subject to depreciation.

ALLOWANCE FOR DOUBTFUL ACCOUNT- this is a contra asset or valuation account refers
to the portion of account receivable that is estimated to be uncollectible at the end of a particular
accounting period.BAD DEBTS OTHER TERM

ACCUMULATED DEPRECIATION- this is a contra asset or a valuation account which refers to

the aggregate portion of the total cost of property, plant and equipment that has been charged to
depreciation expenses.

LIABILITIES - are obligations of an entity arising from past transactions or events, the
settlement of which is expected to result in an outflow from the business of resources
embodying economic benefits. They are also classified into two: the current liabilities- expected
to be paid by payment of cash, delivery of goods or service within normal operating cycle or
within one year. The other one is non-current liabilities. They are expected to be paid in cash
beyond one year.

ACCOUNTS PAYABLE -this refers to open accounts which represents the amount owed by the
business to creditors or suppliers.

NOTES PAYABLE- this represents the amount owed by the business to creditors or suppliers
evidenced by a promissory note.

MORTGAGE PAYABLE - this represents the amount of money borrowed by the business from
a bank or lending institution which is secured by collateral.

Unearned Revenues- this represents cash collected by the business in advance for a service
or good that is yet to be rendered or delivered.

OWNER’S EQUITY- it represents ownership and its terminology changes depending on the
form of business organization. Like Santos Capital for sole proprietorship, partners’ capital or
stockholder’s equity.. Owner’s drawing account is issued when withdrawal is made by the owner
for personal use.

SERVICE REVENUE -is refers to the earnings made by any business that is into rendering
services. Some make use of SERVICE INCOME.

INTEREST INCOME- this represents interests credited by the bank to the account of the
business arising from the bank deposits.

SALES- this represents the earnings made by any business that is into selling goods or
merchandise.
PROFESSIONAL FEES- this represents earnings made by professionals or experts from
rendering services to their clients. Professionals include lawyers, doctors etc.

EXPENSES are costs being incurred by the business in generating revenues.

UTILITIES EXPENSE- this refers to costs associated with the usage of electricity, water,
communication for a particular accounting period.

SALARIES EXPENSE - this refers to cost incurred associated with the services rendered
normally by permanent and full time employees who are paid on a regular basis.

WAGE EXPENSE- FOR PAYMENT OF SALARIES OF NON PERMANENT EMPLOYEES

TAXES AND LICENSE EXPENSE=this represents the costs incurred to register business, to
acquire permits to operate and pay taxes.

COST OF SALES- this refers to the cost of merchandise or goods that were sold during a
particular accounting period.

SUPPLIES EXPENSE - this refers to the amount of supplies that was used during a particular
period.

DOUBTFUL ACCOUNTS OR BAD DEBTS EXPENSES- this refers to the amount of accounts
receivable that is estimated as uncollectible and it recognized as an expense in the current year.

DEPRECIATION EXPENSE - this refers to the allocated portion of the cost of property plant,
equipment charge to expense in the current year.

Asset is 150,000= liabilities of 50,000 + owner’s equity of

150,000- 50,000= 100,000