At the end of this lesson, students

should be able to:

■ define assets, liabilities, and owner’s
equity
■ appreciate the value of their money in
solving business transactions
■ apply the concept of accounting equation
in their day to day transactions
THE ACCOUNTING
EQUATION
Chapter 7
 Elements of Accounting
Equation
■ASSETS
■LIABILITIES
■OWNER’S EQUITY
ASSETS=LIABILITIES +
OWNER’S EQUITY
 Assets
■These are the resources that
the entity owns in order to
derive some future benefits.
■These are used by the
company in its normal
operations.
Liabilities
■Claims of the external parties
from the entity.
■Some of these are in the form
of obligations to do some
service or even give something.
■Basically these are debts
Owner’s Equity
■It reflects the
residual claims or
net assets of the
owners of an entity.
ASSETS=LIABILITIES +
OWNER’S EQUITY
ASSETS LIABILITIES OWNER’S
EQUITY

120,000 20,000 ?
ASSETS LIABILITIES OWNER’S
EQUITY

? 60,000 50,000
ASSETS LIABILITIES OWNER’S
EQUITY

80,000 ? 35,000
ASSETS LIABILITIES OWNER’S
EQUITY

625,037 208,400 ?
ASSETS LIABILITIES OWNER’S
EQUITY

? 23,800 152,200
ASSETS LIABILITIES OWNER’S
EQUITY

? 20,000 80,000
ASSETS
■ Cash
■ Accounts Receivable
■ Supplies
■Prepaid Expense
■ Inventories
■Equipment
■ Land and Building
■Furniture and Fixtures
Liabilities

■Accounts Payable
■Loans Payable
■Unearned Revenue
OWNER’S EQUITY
■REVENUES
■EXPENSES
■CAPITAL
■WITHDRAWAL/ Drawing
 ■The accounting equation is
presented through financial
statement called balance sheet or
statement of financial position.
REVIEW TIME!
■Learners are expected to :
■analyze the effects of transactions
through accounting equation
■demonstrate patience in answering
problems
■show the dual effect in each
business transaction through solving
How do transactions
affect the Accounting
Equation?
A business transaction is
characterized by:
■An exchange of values between
two parties in terms of money
■When do we increase or
decrease assets?
■When do we increase or
decrease liabilities?
■When do we increase or
decrease Owner’s Equity?
Items that increase assets

■Investment or capital
■Additional investment
■Acquisition of thing of value by
business
■Claims or receivables
Items that decrease assets

■Payment of cash
■Withdrawal of assets
■Sale of assets
■assets given away as
donations
Items that increase liabilities

■Loan of money
■Acquisition of
things on account
Items that decrease liabilities

■Payment of accounts
■Returning of things
bought on account
Items that increase owner’s equity

■Original capital
■Additional capital
■Income
Items that decrease owner’s equity

■Expenses
■Withdrawals
■Losses
 EFFECTS OF
TRANSACTIONS
Common effects of transactions

■Increase in assets
means increase in
owner’s equity
Common effects of transactions

■Increase in
assets means
increase in liability
Common effects of transactions

■Increase in one form

of assets means
decrease in another
form of assets
Common effects of transactions

■Decrease in assets
means decrease in
liability
Common effects of transactions

■Decrease in
assets means
decrease in
owner’s equity
Let’s Practice!
 Transactions Assets Liabilities + Owner’s Equity
Investment of assets
Withdrawal of assets
Purchase of assets
on account
Acquisition of things
on account
Payment of accounts
Additional
investment
 ■The following are the
transactions of May Sorio
for the month of March
who owns Happy Tour
and Travel
Happy Tour & Travel
–March 1
–May Sorio opened a tour
and travel service by
investing P50,000 cash. She
has three cars but decided
to invest in the business only
two cars amounting to
P750,000
Happy Tour & Travel
■March 3
■Sorio borrowed
P100,000 cash from
Metrobank for use in her
business
Happy Tour & Travel
■March 7
■Bought tables and
chairs from Blim’s
Furniture and paid
cash, P45,000
Happy Tour & Travel
■March 15
■Various equipment
were purchased on
account from National
Winters for P55,000
Happy Tour & Travel
■MARCH 18
■Sorio made a cash
withdrawal of
P5,000 for personal
use
Happy Tour & Travel
■MARCH 21
■A tourist hired the services
of the agency for a tour in
Baguio. P15,000 cash was
received from the tourist.
Happy Tour & Travel
■MARCH 22
■Cash was paid for the
following: gas and oil,
P500 and repair of car,
P1,000
Happy Tour & Travel
■MARCH 24
■Sorio rendered services
for Mr. Gray’s visitors and
promised to pay P16,000
on March 31
Happy Tour & Travel
■MARCH 25
■Paid for
telephone bill for
P500
Happy Tour & Travel
■MARCH 27
■The faculty club of TSU hired
the services of the agency for
a tour in Manila. A bill was
issued to them for P20,000
by Happy Tour and Travel
Happy Tour & Travel
■MARCH 30
■Sorio collected half
of the amount of
the account of Mr.
Gray
Happy Tour & Travel

■MARCH 30
■The account due to
National Winters
was paid in cash
Happy Tour & Travel

■MARCH 31
■Paid for rental of office
space P10,000 and
salaries of employees
and workers P9,000
 Assignment # 2
■ Name: SURNAME, First Name Middle Initial Date:
■ Strand & Section:

■ Copy and answer it on 1 whole sheet of paper. This

assignment will be collected and submitted to me by your
class president on August 8 (Thursday). Please comply!
Review well and good luck to your midterm exam 
Directions:
Express the effect in the elements of
accounting equation for the following
business transactions through assigning
values/amount and identifying what specific
account under assets, liabilities and owner’s
equity. Copy first all the business
transactions then provide your answer.
Strictly, follow the format!
Lim organized the “Sira mo, Ayos ko Computer
Repair Shop”. His Transactions for the month of
July are as follows:
July 1 Gerald Lim invested P50,000 in a repair
business
2 Paid taxes and licenses P1,000
4 Paid rent of P1,000
8 Bought furniture on account, P5,000
9 Bought typewriter for cash, P2,000
12 Rendered service for cash, P5,000
■13 Rendered service on account, P8,000
■15 Paid salaries, P2,000
■20 The owner withdrew cash of P2,000
■22 Gerald Lim made an additional investment of
P5,000
■24 Lim made a partial collection of account on
July 13, P3,000
■29 Paid account of July 8
■31 Paid salaries for July 16-30, P2,000