RIZAL TECHNOLOGICAL
UNIVERSITY
Module
I. Introduction to Accounting
II. Accounting Equation
III. Debit and Credit
IV. Journalizing, Posting, Trial
Balance
V. Adjusting Entries, Adjusted
Trial Balance
VI. Financial Statement
VII. Merchandising Concern
Prof. Merylin Magdalena S. Camba
Module 2 Accounting Equation
Importance of the Accounting Equation
Business transactions affect the assets, liabilities, and proprietorship of the business.
These effects can be expressed in the accounting equation:
ASSETS=EQUITIES
Equity is the right, claim, or interest of a person over the assets of the business.
Liability represents such claim in the assets of the business and proprietorship is
the owner’s or owner’s interest in the business.
LIABILITIES
EQUITIES
PROPRIETORSHIP
And since there are two sources of equities, one from the creditors (liabilities) and one
from the owner (proprietorship), then we can express the accounting as:
ASSET=LIABILITIES+PROPRIETORSHIP
ILLUSTRATIONS
Transaction 1
Oct. 1- Mr. Gil opened a motor repair shop and invested ₱100,000 cash.
Equation 1
increase in asset = Increase in proprietorship
A = L + P
Cash ₱ 100,000 = L + Gil, capital ₱100,000
Analysis:
The asset, cash, is increased by ₱100,000.
The proprietorship account is also increased by ₱100,000
Transaction 2
Oct. 3- He purchased repair supplies worth ₱25,000 on credit from De Mesa
Trading.
Equation 2
Increase in asset = Increase in liabilities
A = L + P
repair supplies ₱25,000 = Accounts payable ₱25,000 + P
Analysis:
The asset, repair supplies, is increased by ₱25,000.accounts payable is increased
by ₱25,000.
Transaction 3
Oct. 5 – Billed M. Manzano for repair work done on his automobile , ₱12,000.
Equation 3
Increase in asset = Increase in proprietorship
A = L + P
Accounts receivable ₱12,000 = L + Gil, capital ₱12,000
Analysis:
The asset, account receivable, is increased by ₱12,000
The proprietorship account is also increased by ₱12,000 due to the revenue from
services rendered.
Transaction 4
Oct. 7 – He bought a table and chairs for the business worth ₱6,000 cash.
Equation 4
Increase in one form of asset = Decrease in another form of asset
A = L + P
Furniture ₱6,000 = L + P
Cash (₱6,000)
Analysis:
One form of asset, furniture, is increased and another form of asset, cash, is
decreased.
Transaction 5
Oct.12 – Issued a promissory note to De Mesa trading to apply on his
account. (transaction 2)
Equation 5
Decrease in one form of liability = Increase in another form of liability
A = L +P
A = Accounts payable (₱25,000) + P
Notes payable ₱25,000
Analysis:
One form of liability, accounts payable, is decreased and another liability, notes
payable, is increased.
Transaction 6
Oct.15 – Paid the salary of the assistant worth ₱ 5,000 cash.
Equation 6
Decrease in asset = Decrease in proprietorship
A = L + P
Cash (₱5,000) = L +Gil, capital(₱5,000)
Analysis:
The asset, cash, is decreased by ₱5,000 and the proprietorship account is also
decreased by ₱5,000 due to the salary expense incurred by the business.
Transaction 7
Oct.20- Paid the note issued to De Mesa Trading (transaction 5).
Equation 7
Decrease in asset = Decrease in liabilities
A = L + P
Cash (₱25,000) = Note payable (₱ 25,000) + P
Analysis:
The asset, cash, is decreased by ₱25,000 and liability, note payable, is also
decreased by ₱25,000.
Transaction 8
Oct.29 – Mr. Gil withdrew ₱15,000 from the business for his personal use.
Equation 8
Decrease in asset = Decrease in proprietorship
A = L + P
Cash (₱15,000) = L + Gil, capital (₱15,000)
Analysis:
The asset, cash, is decreased and the proprietorship is also decreased due to the
amount withdrawn by the owner for his personal use.
