ACCOUNTING EQUATION

CONCEPTS AND PRINCIPLES

 BASIC ACCOUNTING EQUATION
ASSETS = LIABILITIES + EQUITY
are economic resources are present obligations that Is simply assets minus
you control that have have resulted from past liabilities. Other term for
resulted from past events events and can require you equity is capital, net assets
and can provide you with to give up economic and net worth.
economic benefits. resources when settling
them.

ASSETS = LIABILITIES + EQUITY

1,200 400 800
5,000 1,500 ?
? 2,000 4,500
3,000 ? 1,700
8,000 3,000 ?
 BASIC ACCOUNTING EQUATION
ASSETS = LIABILITIES + EQUITY
are economic resources are present obligations that Is simply assets minus
you control that have have resulted from past liabilities. Other term for
resulted from past events events and can require you equity is capital, net assets
and can provide you with to give up economic and net worth.
economic benefits. resources when settling
them.

ASSETS = LIABILITIES + EQUITY

1,200 400 800
5,000 1,500 ?
? 2,000 4,500
3,000 ? 1,700
8,000 3,000 ?
EXPANDED ACCOUNTING EQUATION:
FIVE MAJOR ACCOUNTS
ASSETS = LIABILITIES + EQUITY + INCOME - EXPENSES
are increases in assets are decreases in assets
or decreases in liabilities, or increases in liabilities,
that results in increases that results in decreases
in equity, excluding in equity, excluding
investments by owners. investments by owners.
Revenues and Gains. Expenses and Losses.

ASSETS = LIABILITIES + EQUITY + INCOME - EXPENSES

1,200 400 750 200 150
5,000 1,500 ? 300 200
? 2,000 4,500 400 150
3,000 1,200 1,700 ? 450
8,000 3,000 4,600 700 ?
Accounts – basic storage of information in accounting. It is a record
of the increases and decreases in a specific item of an asset,
liability, equity, income and expenses.
Account Title – describes the specific item of assets, liability, equity,
income and expenses.
Debit side – the left side of the account.
Credit side – the right side of the account.
Chart of accounts - Is a list of all accounts used by a business.
BASIC ACCOUNTING CONCEPTS AND
PRINCIPLES
 Sourced from the Standards (PFRS), Conceptual Framework for
Financial Reporting or general acceptance in the profession due
to long time use.

1. Separate Entity Concept 7. Time Period

2. Historical Cost Concept 8. Stable Monetary Unit
3. Going Concern Assumption 9. Materiality Concept
4. Matching 10. Cost Benefit
5. Accrual Basis of Accounting 11. Full Disclosure Principle
6. Prudence 12. Consistency Concept
BASIC ACCOUNTING CONCEPTS AND
PRINCIPLES
1. Separate Entity Concept
 The business is viewed as a different person, distinct from its
owner(s). Only the transactions of the business are recorded in
the books.
2. Historical Cost Concept
 Assets are initially recorded at their acquisition cost.
3. Going Concern Assumption
 The business is assumed to continue to exist for an indefinite
period of time.
4. Matching (Association of Cause and Effect)
 Some cost are initially recognized as assets and charged as
expense only when the related revenue is recognized.
BASIC ACCOUNTING CONCEPTS AND
PRINCIPLES
5. Accrual Basis of Accounting
 Economic events are recorded in the period in which they occur
rather than at the point in time when they affect cash.
6. Prudence
 The Accountant observes some degree of caution when exercising
judgements needed in making accounting estimates under
conditions of uncertainty.
7. Time Period (Periodicity, Accounting Period, or Reporting Period
Concept)
 Calendar year (Jan.1 – Dec. 31) ; Fiscal year (covers 12 months but
starts on date other than Jan. 1)
8. Stable Monetary Unit
 Assets, Liabilities, Equity, Income and Expenses are stated in
common monetary units.
BASIC ACCOUNTING CONCEPTS AND
PRINCIPLES
9. Materiality Concept
 An item is considered material if its omission or misstatement could
influence economic decisions. It is a matter of professional
judgement.
10. Cost Benefit (Cost Constraint)
 Cost of processing and communicating information should not
exceed the benefits to be derived from the information’s use.
11. Full Disclosure Principles
 Sufficient detail to disclose matters that make a difference to users
yet sufficient condensation to make the information understandable.
12. Consistency Concept
 Requires business to apply accounting policies and present
information consistently from one period to another.
CLASSIFICATION OF THE FIVE MAJOR
ACCOUNTS

Accounts Normal balance Classification

Debit Credit

Assets Debit
Balance
Liabilities Credit Sheet
Account
Equity Credit

Income Credit Income

Statement
Expenses Debit Account
GENERAL JOURNAL

Date Account Titles Acct.

No.
Debit Credit
8/15/22 Utilities Expense 530 5,000
Accounts Payable 210 5,000
*To record accrual of utilities

8/20/22 Cash 110 10,000

Owner’s Capital 310 10,000
* To record investment
GENERAL LEDGER
110 Cash
Date Description Ref. Amount Date Description Ref. Amount

8/20/22 Investment GJ1 10,000

Balance 10,000 Balance

Total 10,000 Total

210 Accounts Payable

Date Description Ref. Amount Date Description Ref. Amount

8/15/22 Accrual of Utilities GJ1 5,000

Balance Balance 5,000

Total Total 5,000

GENERAL LEDGER
310 Capital
Date Description Ref. Amount Date Description Ref. Amount

8/20/22 Investment GJ1 10,000

Balance Balance 10,000

Total Total 10,000

330 Utilities Expense

Date Description Ref. Amount Date Description Ref. Amount

8/15/22 Accrual of Utilities GJ1 5,000

Balance 5,000

Total 5,000
GENERAL LEDGER : T - ACCOUNTS

Cash Accounts Payable

Investment 10,000 5,000 Utilities

Balance 10,000 5,000 Balance

Capital Utilities Expense

5,000 Investment Utilities 10,000

5,000 Balance Balance 10,000

GENERAL JOURNAL: PROBLEM DISCUSSION
Sample Problems:
a. X invested 20,000 in his business.
b. X paid utilities of 1,000.
c. Rendered services for Y for 1,500 on credit.
Date Account Titles Acct. No. Debit Credit
a Cash 110 20,000
Owner’s Capital 310 20,000
* To record investment

b Utilities Expense 515 1,000

Cash 110 1,000
* To record payment of utilities

c Accounts Receivable 115 1,500

Service Income 410 1,500
* To record services rendered
GENERAL JOURNAL: PROBLEM DISCUSSION
Sample Problems:
d. X bought supplies worth of 3,000 on credit.
e. X collected 500 from Y.
f. Rendered services of 1,000 for Z on cash.
Date Account Titles Acct. No. Debit Credit
d Supplies Expense 510 3,000
Accounts Payable 210 3,000
* To record supplies bought

e Cash 110 500

Accounts Receivable 115 500
* To record collection

f Cash 115 1,000

Service Income 410 1,000
* To record services rendered
GENERAL LEDGER
110 Cash
Date Description Ref. Amount Date Description Ref. Amount
a Investment GJ1 20,000 b Payment of utilities GJ1 1,000
e Collection GJ2 500
f Services rendered GJ2 1,000

Balance 21,500 Balance 1,000

Total 20,500

120 Accounts Receivable

Date Description Ref. Amount Date Description Ref. Amount
c Services rendered GJ1 1,500 e Collection GJ2 500

Balance 1,500 Balance 500

Total 1,000
GENERAL LEDGER
210 Accounts Payable
Date Description Ref. Amount Date Description Ref. Amount
d Supplies bought GJ2 3,000

Balance - Balance 3,000

Total 3,000
310 X, Capital
Date Description Ref. Amount Date Description Ref. Amount
a Investment GJ1 20,000

Balance - Balance 20,000

Total 20,000

410 Service Income

Date Description Ref. Amount Date Description Ref. Amount
c Services rendered GJ1 1,500
f Services rendered GJ2 1,000
Balance - Balance 2,500
Total 2,500
GENERAL LEDGER

510 Supplies Expense

Date Description Ref. Amount Date Description Ref. Amount
d Supplies bought GJ2 3,000

Balance 3,000 Balance -

Total 3,000

515 Utilities Expense

Date Description Ref. Amount Date Description Ref. Amount
b Payment of Utilities GJ1 1,000

Balance 1,000 Balance -

Total 1,000
GENERAL LEDGER : T - ACCOUNTS

Cash Accounts Receivable

Balance

Balance

Accounts Payable X, Capital

Balance Balance
GENERAL LEDGER : T - ACCOUNTS

Service Income Supplies Expense

Balance
Balance

Utilities Expense

Balance
UNADJUSTED TRIAL BALANCE
X, Company
Unadjusted Trial Balance
For the month ended August 31, 2022
Debit Credit
Cash 20,500
Accounts Receivable 1,000
Accounts Payable 3,000
X, Capital 20,000
Service Income 2,500
Supplies Expense 3,000
Utilities Expense 1,000

Total 25,500 25,500

EXCERCISES:
a. JR invested equipment worth 10,000 in his business.
b. JR bought supplies from Reyes worth of 10,000.
c. Rendered services worth 8,000 of which half was paid on cash.

Date Account Titles Acct. No. Debit Credit

a

c
EXERCISES:
d. JR invested additional 5,000 cash in his business.
e. JR bought equipment for 5,000 on cash
f. JR collected 2,500.

Date Account Titles Acct. No. Debit Credit

d

f
EXCERCISES:
g. Paid Water Bill of 500; Electricity of 1,500; and Rent for 3,000
h. JR withdrew cash of 3,000.
i. JR incurred 2,000 salaries for his employees on credit.

Date Account Titles Acct. No. Debit Credit

g