Week 7 Date: March 08, 2021

Subject Fundamentals of Accountancy, Business and

Management 1
Type of Activity Concept Notes
Activity Title Owner’s Equity
Learning Target Define and determine the different components of
the owner’s equity
Reference Title Fundamentals of Accountancy, Business and
Management 1
Author/s Joy S. Rabo, et. Al
OWNER’S EQUITY
DEFINITION AND ITS COMPONENTS
 Definition of
OWNER’S EQUITY
 DEFINITION OF OWNER’S EQUITY

OWNER’S EQUITY is the owners’ claim to company assets

after all of the liabilities have been paid off.
 OWNER’S EQUITY:
OWNER'S CAPITAL AND DRAWING ACCOUNT

OWNER’S EQUITY represents ownership.

Owner’s capital account is increased by additional contribution of

the owner and recognition of business’ net income and decreased by
withdrawals by the owner and recognition of business’ net losses.

Owner’s drawing account is used when withdrawal is made by the

owner to determine total withdrawals for each accounting period.
COMPONENTS OF OWNER’S
EQUITY
REVENUES
(DEFINITION AND EXAMPLES)
 OWNER’S EQUITY: REVENUES

Revenues are the earnings arising from the

main line of operations of the business.
Examples of revenue accounts include:
1. Service Revenue
2. Interest income
3. Sales
4. Professional fees
 OWNER’S EQUITY: REVENUES

Service Revenue refers to

the earnings made by any
business that is into
rendering services.
 OWNER’S EQUITY: REVENUES

Interest Income represents interests

credited by the bank to the account of
the business arising from bank
deposits.
 OWNER’S EQUITY: REVENUES

Sales represents the earning

made by any business that is
into selling goods or
merchandise.
 OWNER’S EQUITY: REVENUES

Professional Fees represents

earnings made by professionals or
experts from rendering services to
their clients. Professionals include
lawyers, doctors, and certified public
accountants, among others.
EXPENSES
(DEFINITION AND EXAMPLES)
 OWNER’S EQUITY: EXPENSES

Expenses are the costs being incurred by the business in

generating revenues. It is the cost of doing the main line
of operations of the business.
Examples of expenses accounts include:
1. Utilities Expense
2. Salaries Expense
3. Wages Expense
4. Taxes and Licenses
5. Cost of Sales
6. Supplies Expense
7. Doubtful Accounts Expense
8. Depreciation Expense
 OWNER’S EQUITY: EXPENSES

Utilities Expense refers to costs associated with the usage of

electricity, water, and communication for a particular accounting
period.
OWNER’S EQUITY: EXPENSES

Salaries Expense refers to costs

incurred associated with the services
rendered normally by permanent and
full-time employees who are paid on a
regular basis, usually monthly.
 OWNER’S EQUITY: EXPENSES

Wages Expense refers to costs incurred

associated with the services rendered
normally by contractual and temporary
employees and workers who are paid on
an hourly rate or based on output.
 OWNER’S EQUITY: EXPENSES

Taxes and Licenses represents costs incurred to register the

business, to acquire the right to operate, and to settle taxes.
 OWNER’S EQUITY: EXPENSES

Cost of Sales refers to the cost of merchandise or goods that

were sold during a particular accounting period.
 OWNER’S EQUITY: EXPENSES

Supplies Expense refers to the amount of supplies that was

used during a particular accounting period.
 OWNER’S EQUITY: EXPENSES

Doubtful Accounts Expense refers to the amount of

accounts receivable that is estimated as uncollectible and is
recognized as an expense in the current accounting period.
 OWNER’S EQUITY: EXPENSES

Depreciation Expense refers to the allocated portion of the cost of

property, plant and equipment charged to expense in the current
accounting period.