EFFECTS OF

TRANSACTIONS ON THE
ACCOUNTING EQUATION
Fundamentals of Accountancy, Business, and Management 1
TRANSACTIONS ASSETS LIABILITIES CAPITAL
Investments + +

Withdrawals - -

Service Revenue + +

Accounts Receivable + +

Expenses - -

Accounts Payable + +
TRANSACTIONS ASSETS LIABILITIES CAPITAL
Owner invests cash
Owner invests equipment
Renders services for cash
Renders services on credit
Collects account in
transaction #4
Purchases supplies on credit
Returns defective supplies
Pays the supplies bought on
account
Borrow cash issuing a note
Purchase land using cash
Pays utilities expense for the
month
Pays the note in full
TRANSACTIONS ASSETS LIABILITIES CAPITAL
Owner invests cash INC INC
Owner invests equipment INC INC
Renders services for cash INC INC
Renders services on credit INC INC
Collects account in INC/DEC
transaction #4
Purchases supplies on credit INC INC
Returns defective supplies DEC DEC
Pays the supplies bought on DEC DEC
account
Borrow cash issuing a note INC INC
Purchase land using cash INC/DEC
Pays utilities expense for the DEC DEC
month
Pays the note in full DEC DEC
TRANSACTIONS ASSETS LIABILITIES CAPITAL
Owner invests cash P 800,000 P 800,000
Owner invests equipment P 50,000 P 50,000
Renders services for cash P 25,000 P 25,000
Renders services on credit P 9,000 P 9,000
Collects account in P 9,000
transaction #4
Purchases supplies on credit 1,000 1,000
Returns defective supplies P 120 P 120
Pays the supplies bought on P 880 P 880
account
Borrow cash issuing a note P 90,000 P 90,000
Purchase land using cash P 500,000
Pays utilities expense for the P 800 P 800
month
Pays the note in full P 90,000 P 90,000
Indicate whether it is an increase (+), decrease (-), or no effect on the asset, liabilities and equity accounts.

1. Investment of cash in the business

2. Purchase of computer equipment for cash
3. Billed a customer for services rendered
4. Paid salaries expense.
5. Purchased office supplies on credit
6. Paid advertising expense
7. Paid rent in advance for 3 months
8. Received cash from customers on account
9. Withdrew cash for personal use
10. Invested land into the company
MAJOR ACCOUNTS
 ACCOUNTING EQUATION

= +
Assets = Liabilities + Owner’s
Equity
Assets
- anything that a company owns
◦ Cash
◦ Vehicles
◦ Buildings
◦ Machinery/Equipment
◦ Furniture
◦ Supplies
Current Assets
Non-Current Assets
Liabilities
- what a company owes
◦ Accounts Payable
◦ Taxes Payable
◦ Salaries Payable
◦ Notes Payable
Current Liabilities
Non-Current Liabilities
◦ Loans Payable
◦ Mortgage Payable
Owner’s Equity
- The amount of money that a company owner has
personally invested in the company.
Capital (+)
Withdrawals (-)
Revenue (+)
Expenses (-)
◦ Capital is the value of cash and other assets invested in the business by the
owner of the business.
◦ Drawing is an account debited for assets withdrawn by the owner for personal
use from the business.
◦ Income is the Increase in resources resulting from performance of service or
selling of goods. (Examples: Service revenue for service entities, Sales for
merchandising and manufacturing companies)
◦ Expense is the decrease in resources resulting from the operations of business.
(Examples: Salaries Expense, Interest Expense, Utilities Expense)
 Withdrawals
Wages Payable
Cash

Salaries Expense

Supplies Expense
Revenue
Land
Notes Payable