THE ACCOUNTING

EQUATION
 OBJECTIVE

 The learners demonstrate an understanding of the

accounting equation and the effects of business
transactions to the major types of accounts.
 Review
1. What is the basic accounting equation?
BASIC ACCOUNTING EQUATION
Assets = Liabilities + Owner’s Equity

Left side:
Assets
BASIC ACCOUNTING EQUATION
Assets = Liabilities + Owner’s Equity

Right side: Liabilities and

Owner’s Equity
 EFFECTS OF TRANSACTIONS ON
THE ACCOUNTING EQUATION

When a business is put up, its resources (assets) come from two
sources: contributions by owners (capital) and those acquired from
creditors or lenders (liabilities).

In other words, all assets initially come from

liabilities and owners' contributions.
ENRICHMENT
EXERCISES
I LOVE ACCOUNTING!
 IDENTIFYING ELEMENTS OF FINANCIAL STATEMENTS

Instruction: Indicate if the account listed below is an

ASSET, LIABILITY, EQUITY, REVENUE, EXPENSE, or
CONTRA-ACCOUNT. Put your answers on the blank
space provided before each item.
_____________1. Building
_____________2. Accounts Payable
_____________3. Salaries Payable
_____________4. Intangible Assets
_____________5. Loans Payable
 IDENTIFYING ELEMENTS OF FINANCIAL STATEMENTS

Instruction: Indicate if the account listed below is an

ASSET, LIABILITY, EQUITY, REVENUE, EXPENSE, or
CONTRA-ACCOUNT. Put your answers on the blank
space provided before each item.
_____________6. Notes Receivable
_____________7. Utilities Expense
_____________8. Allowance for Doubtful Accounts
_____________9. Expired Rent
_____________10. Supplies Used
 IDENTIFYING ELEMENTS OF FINANCIAL STATEMENTS

Instruction: Indicate if the account listed below is an

ASSET, LIABILITY, EQUITY, REVENUE, EXPENSE, or
CONTRA-ACCOUNT. Put your answers on the blank
space provided before each item.
_____________11. Accrued Salaries
_____________12. Mr. De Lion, Capital
_____________13. Accrued Rent Income
_____________14. Unearned Service Revenue
_____________15. Accumulated Depreciation
 IDENTIFYING ELEMENTS OF FINANCIAL STATEMENTS

Instruction: Indicate if the account listed below is an

ASSET, LIABILITY, EQUITY, REVENUE, EXPENSE, or
CONTRA-ACCOUNT. Put your answers on the blank
space provided before each item.
_____________16. Machinery
_____________17. Interest Receivable
_____________18. Cash on Hand
_____________19. Goods Held for Sale
_____________20. Advances to Employees
 IDENTIFYING ELEMENTS OF FINANCIAL STATEMENTS

Instruction: Indicate if the account listed below is an

ASSET, LIABILITY, EQUITY, REVENUE, EXPENSE, or
CONTRA-ACCOUNT. Put your answers on the blank
space provided before each item.
_____________21. Depreciation Expense
_____________22. Mr. Yulo, Drawing
_____________23. Unused Supplies
_____________24. Salaries Payable
_____________25. Service Income
 IDENTIFYING ELEMENTS OF FINANCIAL STATEMENTS

Instruction: Indicate if the account listed below is an

ASSET, LIABILITY, EQUITY, REVENUE, EXPENSE, or
CONTRA-ACCOUNT. Put your answers on the blank
space provided before each item.
_____________26. Income Tax Expense
_____________27. Expired Insurance
_____________28. Unexpired Insurance
_____________29. Merchandise Inventory
_____________30. Loans Payable
 IDENTIFYING ELEMENTS OF FINANCIAL STATEMENTS

Instruction: Indicate if the account listed below is an

ASSET, LIABILITY, EQUITY, REVENUE, EXPENSE, or
CONTRA-ACCOUNT. Put your answers on the blank
space provided before each item.
_____________31. Accounts Receivable
_____________32. Long Term Debt
_____________33. Petty Cash Fund
_____________34. Computer Equipment
_____________35. Delivery Truck
 IDENTIFYING ELEMENTS OF FINANCIAL STATEMENTS

Instruction: Indicate if the account listed below is an

ASSET, LIABILITY, EQUITY, REVENUE, EXPENSE, or
CONTRA-ACCOUNT. Put your answers on the blank
space provided before each item.
_____________36. Furniture and Fixtures
_____________37. Store Supplies
_____________38. Merchandise Inventory
_____________39. Land
_____________40. Marketable Securities
 IDENTIFYING ELEMENTS OF FINANCIAL STATEMENTS

Instruction: Indicate if the account listed below is an

ASSET, LIABILITY, EQUITY, REVENUE, EXPENSE, or
CONTRA-ACCOUNT. Put your answers on the blank
space provided before each item.
_____________41. Notes Payable
_____________42. Long Term Notes Receivable
_____________43. Accrued Revenue
_____________44. Prepaid Rent
_____________45. Accrued Interest Expense
 IDENTIFYING ELEMENTS OF FINANCIAL STATEMENTS

Instruction: Indicate if the account listed below is an

ASSET, LIABILITY, EQUITY, REVENUE, EXPENSE, or
CONTRA-ACCOUNT. Put your answers on the blank
space provided before each item.
_____________46. Service Equipment
_____________47. Gain on sale of Equipment
_____________48. Sales
_____________49. Sales Return
_____________50. Supplies Expense
 EFFECTS OF TRANSACTIONS ON THE ACCOUNTING
EQUATION
For each transaction, tell whether the assets, liabilities
and equity will increase (I), decrease (D) or is not affected
(NE).
Transactions Asset Liability Owner's Equity
1. Investment of equipment in the business.
2. Purchase furniture and fixtures for cash.
3. Billed a customer for services rendered
4. Paid miscellaneous expense
5. Purchased office supplies on credit
6. Paid taxes and licenses expense      
7. Paid rent      
8. Received cash from services rendered      
9. Withdrew supplies for personal use      
10. Invested land into the company      
 PROBLEM SOLVING

Presented are the Balance Sheet, Income Statement and Statement

of Changes in Owner’s Equity of DAUGHTERTE Art Gallery. Answer
the following questions below:
Utilities Payable 900
Accounts Receivable 57,000
Daughterte, Capital January 1 400,000
Daughterte, Drawing 30,000
Allowance for Bad Debts 4,000
Notes Payable 200,000
Painting Revenue 350,000
Art Supplies 12,000
Cash 936,500
Accounts Payable 37,000
Salaries Expense 2,500
Prepaid Rent 30,000
Office Equipment 50,000
Prepaid Insurance 18,000
Accumulated Depreciation - Office Equipment 5,000
Utilities Expense 4,900
Unearned Painting Revenue 150,000
Taxes and licenses Expense 6,000
 
During the year, the owner had no additional investments.
 PROBLEM SOLVING
Utilities Payable 900
Accounts Receivable 57,000
Daughterte, Capital January 1 400,000
Daughterte, Drawing 30,000
Allowance for Bad Debts 4,000
Notes Payable 200,000
Painting Revenue 350,000
Art Supplies 12,000
Cash 936,500
Accounts Payable 37,000
Salaries Expense 2,500
Prepaid Rent 30,000
Office Equipment 50,000
Prepaid Insurance 18,000
Accumulated Depreciation - Office Equipment 5,000
Utilities Expense 4,900
Unearned Painting Revenue 150,000
Taxes and licenses Expense 6,000
 
During the year, the owner had no additional investments.

Determine the following:

1. Total Assets = 4. Total Revenues =
2. Total Liabilities = 5. Total Expenses =
3. Total Owner’s Equity = 6. Net Income or (Net Loss) =
 PROBLEM SOLVING
Utilities Payable 900
Accounts Receivable 57,000
Daughterte, Capital January 1 400,000
Daughterte, Drawing 30,000
Allowance for Bad Debts 4,000
Notes Payable 200,000
Painting Revenue 350,000
Art Supplies 12,000
Cash 936,500
Accounts Payable 37,000
Salaries Expense 2,500
Prepaid Rent 30,000
Office Equipment 50,000
Prepaid Insurance 18,000
Accumulated Depreciation - Office Equipment 5,000
Utilities Expense 4,900
Unearned Painting Revenue 150,000
Taxes and licenses Expense 6,000
 
During the year, the owner had no additional investments.

Determine the following:

1. Total Assets = 1,094,500
 PROBLEM SOLVING
Utilities Payable 900
Accounts Receivable 57,000
Daughterte, Capital January 1 400,000
Daughterte, Drawing 30,000
Allowance for Bad Debts 4,000
Notes Payable 200,000
Painting Revenue 350,000
Art Supplies 12,000
Cash 936,500
Accounts Payable 37,000
Salaries Expense 2,500
Prepaid Rent 30,000
Office Equipment 50,000
Prepaid Insurance 18,000
Accumulated Depreciation - Office Equipment 5,000
Utilities Expense 4,900
Unearned Painting Revenue 150,000
Taxes and licenses Expense 6,000
 
During the year, the owner had no additional investments.

Determine the following:

2. Total Liabilities = 387,900
 PROBLEM SOLVING
Utilities Payable 900
Accounts Receivable 57,000
Daughterte, Capital January 1 400,000
Daughterte, Drawing 30,000
Allowance for Bad Debts 4,000
Notes Payable 200,000
Painting Revenue 350,000
Art Supplies 12,000
Cash 936,500
Accounts Payable 37,000
Salaries Expense 2,500
Prepaid Rent 30,000
Office Equipment 50,000
Prepaid Insurance 18,000
Accumulated Depreciation - Office Equipment 5,000
Utilities Expense 4,900
Unearned Painting Revenue 150,000
Taxes and licenses Expense 6,000
 
During the year, the owner had no additional investments.

Determine the following:

3. Total Owner’s Equity = 706,600 (Total Assets – Total Liabilities)
1,094,500 – 387,900
 PROBLEM SOLVING
Utilities Payable 900
Accounts Receivable 57,000
Daughterte, Capital January 1 400,000
Daughterte, Drawing 30,000
Allowance for Bad Debts 4,000
Notes Payable 200,000
Painting Revenue 350,000
Art Supplies 12,000
Cash 936,500
Accounts Payable 37,000
Salaries Expense 2,500
Prepaid Rent 30,000
Office Equipment 50,000
Prepaid Insurance 18,000
Accumulated Depreciation - Office Equipment 5,000
Utilities Expense 4,900
Unearned Painting Revenue 150,000
Taxes and licenses Expense 6,000
 
During the year, the owner had no additional investments.

Determine the following:

4. Total Revenues = 350,000
 PROBLEM SOLVING
Utilities Payable 900
Accounts Receivable 57,000
Daughterte, Capital January 1 400,000
Daughterte, Drawing 30,000
Allowance for Bad Debts 4,000
Notes Payable 200,000
Painting Revenue 350,000
Art Supplies 12,000
Cash 936,500
Accounts Payable 37,000
Salaries Expense 2,500
Prepaid Rent 30,000
Office Equipment 50,000
Prepaid Insurance 18,000
Accumulated Depreciation - Office Equipment 5,000
Utilities Expense 4,900
Unearned Painting Revenue 150,000
Taxes and licenses Expense 6,000
 
During the year, the owner had no additional investments.

Determine the following:

5. Total Expenses = 13,400
 PROBLEM SOLVING
Utilities Payable 900
Accounts Receivable 57,000
Daughterte, Capital January 1 400,000
Daughterte, Drawing 30,000
Allowance for Bad Debts 4,000
Notes Payable 200,000
Painting Revenue 350,000
Art Supplies 12,000
Cash 936,500
Accounts Payable 37,000
Salaries Expense 2,500
Prepaid Rent 30,000
Office Equipment 50,000
Prepaid Insurance 18,000
Accumulated Depreciation - Office Equipment 5,000
Utilities Expense 4,900
Unearned Painting Revenue 150,000
Taxes and licenses Expense 6,000
 
During the year, the owner had no additional investments.

Determine the following:

6. Net income/Net Loss = Net Income 336,600 (Total Revenue – Total Expenses)
350,000 – 13,400
 PROBLEM SOLVING
Utilities Payable 900
Accounts Receivable 57,000
Daughterte, Capital January 1 400,000
Daughterte, Drawing 30,000
Allowance for Bad Debts 4,000
Notes Payable 200,000
Painting Revenue 350,000
Art Supplies 12,000
Cash 936,500
Accounts Payable 37,000
Salaries Expense 2,500
Prepaid Rent 30,000
Office Equipment 50,000
Prepaid Insurance 18,000
Accumulated Depreciation - Office Equipment 5,000
Utilities Expense 4,900
Unearned Painting Revenue 150,000
Taxes and licenses Expense 6,000
 
During the year, the owner had no additional investments.

Determine the following:

3. Total Owner’s Equity =
 PROBLEM SOLVING
Utilities Payable 900
Accounts Receivable 57,000
Daughterte, Capital January 1 400,000
Daughterte, Drawing 30,000
Allowance for Bad Debts 4,000
Notes Payable 200,000
Painting Revenue 350,000
Art Supplies 12,000
Cash 936,500
Accounts Payable 37,000
Salaries Expense 2,500
Prepaid Rent 30,000
Office Equipment 50,000
Prepaid Insurance 18,000
Accumulated Depreciation - Office Equipment 5,000
Utilities Expense 4,900
Unearned Painting Revenue 150,000
Taxes and licenses Expense 6,000
 
During the year, the owner had no additional investments.

Determine the following:

3. Total Owner’s Equity = 706,600
THANK YOU!
DO YOUR BEST!