Fundamentals

of
Accountancy, Business &
Management

1
 Chapter 5
The Accounting Equation

Learning Competencies
The learners should be able to…………….
1. Illustrate the accounting equation.
2. Perform operations involving simple cases
with the use of accounting equation.

Chapter 5: The Accounting Equation (by:

Ferrer & Millan)
 The Accounting Equation

Assets= Liabilities + Equity

Chapter 5: The Accounting Equation (by: Ferrer & Millan)

 Definitions
• ASSETS – are the economic resources you
control that have resulted from past events
and can provide you with economic benefits.
• LIABILITIES – are your present obligations
that have resulted from past events and can
require you to give up economic resources
when settling them.
• EQUITY – is assets minus liabilities.

Chapter 5: The Accounting Equation (by: Ferrer & Millan)

 The Expanded Accounting Equation

Assets = Liabilities + Equity + Income - Expenses

Chapter 5: The Accounting Equation (by: Ferrer & Millan)

 Definitions
• INCOME – is increases in economic benefits during the
period in the form of increases in assets, or decreases in
liabilities, that result in increases in equity, excluding those
relating to investments by the business owner.

• EXPENSES – are decreases in economic benefits during the

period in the form of decreases in assets, or increases in
liabilities, that result in decreases in equity, excluding those
relating to distributions to the business owner.

• The difference between income and expenses represents

profit or loss.
Chapter 5: The Accounting Equation (by: Ferrer & Millan)
 Applications of the accounting
equation
1. If total assets is ₱10,000 and total liabilities is ₱6,000,
how much is the total equity?
2. If total liabilities is ₱5,000 and total equity is ₱4,000,
how much is the total assets?
3. If total assets is ₱10,000 and total equity is ₱3,000,
how much is the total liabilities?
4. If total income is ₱10,000 and total expenses are
₱3,000, how much is the profit or loss?
5. If total income is ₱10,000, total expenses are ₱8,000,
total liabilities is ₱7,000, and total equity (before
profit or loss) is ₱6,000, how much is the total assets?
Chapter 5: The Accounting Equation (by: Ferrer & Millan)
OPEN FORUM
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Chapter 5: The Accounting Equation (by:

Ferrer & Millan)
END

Chapter 5: The Accounting Equation (by:

Ferrer & Millan)