FUNDAMENTALS OF ACCOUNTANCY,
BUSINESS AND MANAGEMENT 1
Name of Learner: Grade Level:
Section: Date:
LEARNING ACTIVITY SHEET
The Accounting Equation
I am glad that you were able to accomplish all the activities in the previous lesson. Can you
still identify the principles of accounting? I’m sure you can. And I think we are now ready to
proceed to the next topic.
In this lesson, let us consider the accounting equation which is written as:
ASSETS = LIABILITIES + EQUITY
TAKE NOTE:
• That for every transaction, the accounting equation should always be balanced.
• That Assets are resources owned by the business.
Example: Cash
• That Liabilities are obligations by the business.
Example: Loans
• That Equity is the residual interest of the owner of the business. Meaning, any assets
left after paying liabilities is the right of the owner of the business.
Example: Capital
4 Elements That Affect Equity
1. Investment
2. Withdrawals
3. Revenue
4. Expenses
For further explanation of this topic, let us consider the following example.
Paolo Reyes started a delivery service on July 1, 2019. The following
transactions occurred during the month of July.
He invested PHP800,000 cash and Cars amounting to PHP200,000
Reyes borrowed PHP100,000 cash from PNB for use in his business.
Bought tables and chairs from Orocan and paid PHP45,000 cash
Various equipment were purchased on account from Fortune for
Reyes made a cash withdrawal of PHP5,000 for personal use
The account due to Fortune was paid in cash
DATE ASSET LIABILITIES OWNER'S EQUITY
Loans Accounts Reyes, Reyes
July Cash Cars Furniture Equioment Payable Payable Capital Withdrawal
800000
1 200,000 100,000 1,000,000
100,000
2 (45,000) 45,000
7 55,000 55,000
15 (5,000) (5,000)
18 (55,000) (55,000)
795,000 200,000 45,000 55,000 100,000 0 1,000,000 (5,000)
1,095,000 100,000 995,000
1,095,000 1,095,000
From the table above, we can notice that the amount of Assets is equal to the sum of
Liabilities and Owner’s Equity. It means that the equation is balanced. The table is used to classify
the status of the transactions. As you can see, it is organized according to the order of dates. Cash,
cars, furniture, and equipment are the identified elements under Assets. Loans payable and
accounts payable are obviously under Liabilities, while Reyes, withdrawals and Reyes, capital are
under Owner’s Equity.
TAKE NOTE:
If the transaction pertains to CASH-OUT, it is written with open and close parenthesis.
Example: (45,000)
The learners shall be able to illustrate the accounting equation ( ABM_FABM11-IIIb-c-
8); perform operations involving simple cases with the use of the accounting equation
(ABM_FABM11-IIIb-c-9)
For each transaction, tell whether the Assets (A), Liabilities (L) and Equity (E) will increase (I),
decrease (D) or is not affected (NE).
A L E
1. The owner invests personal cash in the business.
2. The owner withdraws business assets for personal use.
3. The company receives cash from a bank loan.
4. The company repays the bank that had lent money.
5. The company purchases equipment with its cash.
6. The owner contributes her personal truck to the business.
7. The company purchases supply on credit.
8. The company purchases land by paying half in cash and
signing a note.
9. The owner withdraws cash for personal use.
10. The company repays the suppliers.
In this activity, instead of giving the transaction, the activity below is in reverse. You are
going to describe the given transaction. The table is given, study the elements and write down the
transaction of the given table.
OWNER’S
DATE ASSETS LIABILITIES
EQUITY
April Cash Supplies Equipment
Balance 60,000 7,500 300,000 75,000 292,500
1 150,000 150,000
2 (20,000) 20,000
3 (112,500) (112,500)
4 5,000 5,000
5 (15,000) (15,000)
6 (53,000) (53,000)
7 (8,000) (8,000)
Are you ready to write down the transactions? I will do the first and last statement for your basis.
1. The owner invested cash of PHP150,000 or the business earned PHP150,000 cash from
providing services.
2.
3.
4.
5.
6.
7. The owner withdrew supplies worth P8,000 or the business used supplies worth P8,000.
Since you are already done answering the previous activities, I think you are now ready to
make your own table using accounting formula. In this activity, you will write the correct entry for
each transaction.
Aug. 1 Garcia invested P48,000 cash in the business.
1 Rented office space and paid P800 cash for the August rent.
3 Purchased exploration equipment for P22,000 by paying P12,000
cash and agreeing to pay the balance in 3 months.
5 Purchased office supplies by paying P1,500 cash.
6 Completed exploration work and immediately collected P420 cash for the
work.
8 Purchased P1,350 of office equipment on credit.
15 Completed exploration work on credit in the amount of P8,000.
18 Purchased P700 of office supplies on credit.
20 Paid cash for the office equipment purchased on August 8.
24 Billed a client P2,400 for work completed; the balance is due in 30 days.
28 Received P5,000 cash for the work completed on August 15.
30 Paid the assistant’s salary of P1,100 cash for this month.
30 Paid P340 cash for this month’s utility bill.
30 Garcia withdrew P1,050 cash from the business for personal use.
DATE ASSET LIABILITIES OWNER'S EQUITY
Accounts Office Office Exploration Accounts
August Cash Receivable Supplies Equipment Equipment Payable Capital Withdrawal Revenue Expense
1
1
3
5
6
8
15
18
20
24
28
30
30
30
The fundamental accounting equation, also called the balance sheet equation, represents
the relationship between the assets, liabilities, and owner’s equity of a person or business.
Fundamentals of Accountancy, Business and Management 1, P.B. Liquanan, E. B. Ogena,
M.A.C. Montealegre, R.V. Diaz, M.C.R.B. Bautista, B.F. Nebres, C.C. Oracion, G. Price,
S. Bevins
