Accounting Equation
Accounting Equation
Accounting Equation
EQUATION
LEARNING OBJECTIVES
At the end of the lesson, the learners should be able to:
1. Illustrate the accounting equation
2. Define an account
3. Discuss the five major accounts
4. Cite examples of each type of account
5. Prepare a chart of accounts, and
6. Perform operations involving simple cases with the use of
accounting equation
OPENING CASE
Let us continue on with the case of Jose Mercado, the sole
proprietor of the photocopying business which opened on
July 1, 2015. For the quarter ended September 31, 2015, the
business was able to make revenue of P50,000 (all in cash)
and it was able to incur expenses of P 35,000 (all in cash). As
of the end of that quarter total liabilities amounted to
P50,000. Jose Mercado wants to know the business’ total
assets and total owner’s equity. With the help of his friend
who is an accountant, he arrived at P75,000 total assets and
P25,000 total owner’s equity.
In getting these amounts, he retrieved all the business documents he had kept
for the past 3 months and reconstructed his statement of financial position as
follows:
ASSETS = LIABILITIES = OWNER’S EQUITY (OR
CAPITAL)
CASH 45,000 LOAN 50,0000 MERCADO 10,000
PAYABLE CAPITAL
EXPENSES (35,000)