OBJECTIVES:

1. Understand the elements of the

accounting equation.
2. Use the accounting equation to
solve problem.
4 PICS 1 WORD
A S S E T S
______ ______ ______ ______ ______ ______
 L I A B I L I T I E S
______ ______ ______ ______ ______ ______ ______ ______ ______ ______ ______
 E Q U I T Y
______ ______ ______ ______ ______ ______
___ ___ ___ ___ ___ ___
= ___ ___ ___ ___ ___ ___ ___ ___ ___ ___ ___ + ___ ___ ___ ___ ___ ___

ACCOUNTING EQUATION
The Accounting Equation could also apply to a
personal situation. Suppose you buy a car for Php
5,000, borrow Php 4,000 from the bank, and pay the
rest yourself. Here’s the result:
Php
Php
Illustrations
Let us take a few transactions to understand the
accounting equation.
Assets invested by the owner
July 1 - Paolo Reyes started a delivery service on
July 1, 2013. The following transactions occurred
during the month of July. He invested PHP800,000
cash and Cars amounting to PHP200,000

ASSETS = LIABILITIES + OWNER’S EQUITY

Cash 800,000 Reyes Capital 1,000,000
Cars 200,000
Let us take a few transactions to understand the
accounting equation.
Borrowings from the bank
July 2 – Reyes borrowed PHP100,000 cash
from PNB for use in his business.

ASSETS = LIABILITIES + OWNER’S EQUITY

Cash 900,000 Loans 100,000 Reyes Capital 1,000,000
Cars 200,000 Payable
Let us take a few transactions to understand the
accounting equation.
Asset purchased for cash
July 7 – Bought tables and chairs from Orocan and paid
PHP45,000 cash

ASSETS = LIABILITIES + OWNER’S EQUITY

Cash 855,000 Loans 100,000 Reyes Capital 1,000,000
Cars 200,000 Payable
Furnitures 45,000
Let us take a few transactions to understand the
accounting equation.
Assets purchased on account
July 15 – Various equipment were purchased on
account from Fortune for PHP55,000

ASSETS = LIABILITIES + OWNER’S EQUITY

Cash 855,000 Loans 100,000 Reyes Capital 1,000,000
Cars 200,000 Payable
Furnitures 45,000 Accounts 55,000
Equipment 55,000 Payable
Cash withdrawal by the owner
July 18 – Reyes made a cash withdrawal of
PHP5,000 for personal use

ASSETS = LIABILITIES + OWNER’S EQUITY

Cash 850,000 Loans 100,000 Reyes Capital 1,000,000
Cars 200,000 Payable
Accounts 55,000 Reyes Drawing 5,000
Furnitures 45,000
Equipment 55,000 Payable
Payment of liability
July 20 – The account due to Fortune was paid in cash

ASSETS = LIABILITIES + OWNER’S EQUITY

Cash 795,000 Loans 100,000
Reyes Capital 1,000,000
Cars 200,000 Payable
Furnitures 45,000 Reyes Drawing 5,000
Equipment 55,000