Learning Competencies

(Week 3)
The learner…
1.illustrates the accounting equation.
ABM_FABM11-IIIb-c-17
2. performs operations involving simple cases
with the use of accounting equation.
ABM_FABM11- IIIb-c-18
The Effect of Transaction to
Accounting Elements:
 The
ACCOUNTING
EQUATION
Assets – resources that the company controls in order to attain
future benefits.

Liabilities – represent the claims of the entity’s creditors

Equity – represents the residual interest of the owners of the

business.
In using the Accounting Equation,
equality must be maintained throughout
all transactions.
ASSETS = LIABILITIES + OWNER’S EQUITY

A = L + OE
ASSETS = LIABILITIES + OWNER’S EQUITY

A = L + OE

L= A – OE

OE = A - L
Accounting Equation used in
Transaction Analysis:

Owner invested
cash in the business
amounting to
P 300,000.
Owner invested cash in the business
amounting to P 300,000.

A = L + OE
Owner invested cash in the business
amounting to P 300,000.
Cash (A)
Capital/Investment (OE)

A = L + OE
300,000 = O + 300,000
300,000=300,000
The company
borrowed
P 100,000 from a
bank.
Services rendered to client on credit
worth P 5,000.

Accounts Receivable (A)

Accounts Payable (L)

A = L + OE
100,000 = 100,000 + 0
100,000=100,000
Accounting Equation used in
Transaction Analysis:

Services rendered
to client on credit
worth P 5,000.
The company borrowed P 100,000 from
a bank.

Cash (A)
Accounts Payable (L)

A = L + OE
100,000 = 100,000 + 0
100,000=100,000
Accounting Equation used in
Transaction Analysis:

Bought tables and

chairs, paid
P 45,000 cash.
Bought tables and chairs,
paid P 45,000 cash.

Cash (A)
Furnitures & Fixtures (A)
Bought tables and chairs,
paid P 45,000 cash.

Cash (A)
Furnitures & Fixtures (A)

A = L + OE
45,000- 45,000 = 0 + 0
0=0
Accounting Equation used in
Transaction Analysis:

The owner made a

cash withdrawal of
P 12,000 for
personal use.
The owner made a cash withdrawal of
P 12,000 for personal use.

Cash (A)
Owner, Drawing (OE)
The owner made a cash withdrawal of
P 12,000 for personal use.

Cash (A)
Owner, Drawing (OE)

A = L + OE
-12,000 = 0 + (-12,000)
-12,000 = -12,000
Paid salaries of
employees,
P 23,000.
Paid salaries of
employees,
P 23,000.
Cash (A)
Salaries Expense (E)
A = L + OE + R - E
Paid salaries of employees,
P 23,000.

Cash (A)
Salaries Expense (E)

A = L + OE + R - E
-23,000 = 0 + 0 + 0 -23,000
-23,000 = -23,000
Let’s Compute!
1.Kageyama Company has an asset amounting to
P 100,000. Liabilities for the year totaled
P 76,000. How much is the owner’s equity?

2. XYZ Company liabilities amounted P 125,000.

Total equity had an ending balance of P 45,000.
How much is asset?

3. The total liabilities of Xiando Company is

P300,000 while its equity only amounts to half of
its total assets. What is the company’s total
equities?