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NAME:__________________________________________
GRADE/SECTION:______________________________

FUNDAMENTALS
OF ACCOUNTANCY, BUSINESS
AND MANAGEMENT 1
Quarter III – Week 4
Accounting Equation

CONTEXTUALIZED LEARNING ACTIVITY SHEETS

SCHOOLS DIVISION OF PUERTO PRINCESA CITY
Fundamentals of Accountancy, Business and Management 1 – Grade 11
Contextualized Learning Activity Sheets (CLAS)
Quarter III - Week 4: Accounting Equation
First Edition, 2020

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 Lesson 1
Accounting Equation

MELCS: Illustrate the accounting equation (ABM_FABM11- IIIb-c-17); and

Perform operations involving simple cases with the use of accounting equation
(ABM_FABM11- IIIb-c-18)
Objectives:
1. Define accounting equation
2. Explain the types and effects of transaction in the accounting equation
3. Illustrate the accounting equation in expanded format
4. Solve problems applying the accounting equation

Let’s Try
Directions: Read each question carefully. Write the letter of the correct answer on the space
provided before the number.

____1. Which of the following is NOT an element of accounting equation?

A. Assets C. Owner’s Equity
B. Liabilities D. Profit

____2. What is the accounting equation?

A. Assets = Liabilities + Equity C. Assets + Liabilities = Equity
B. Assets +Equity = Liabilities D. Assets -Liabilities + Equity

____3. Which is TRUE about the expanded accounting equation?

A. Assets - Capital = Income-Expense
B. Assets - Expense = Liabilities + Capital -Income
C. Assets + Income = Liabilities + Capital - Expense
D. Assets + Expense = Liabilities + Capital + Income

____4. Which of the following transactions increase the equity?

A. Borrowed money from the bank C. Purchase of land
B. Paid salaries of employees D. Rendered service to customer

____5. Allen Company buys a laptop computer on credit/on account for 50,000. The
transaction will affect the_________?
A. assets only C. assets, liability and equity
B. assets and liability only D. liabilities and owner’s equity

____6. The owner withdrew cash for personal use. What is the effect of this transaction?
A. Decrease and increase in assets
B. Decrease in asset, decrease in equity
C. Decrease in equity, decrease in liability
D. No effect in asset, liabilities and owner’s equity

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____7. If the company has the assets of 45,000 and the owner’s equity of 23,000, how
much is the liability?
A. 20,000.00 C. 24,000.00
B. 22,000.00 D. 26,000.00

____8. The owner invested 100,000 and the company has 30,000 revenue and 20,000
expenses. Before the period ends, the owner withdrew 5,000 for personal use. How
much is the equity?
A. 5,000.00 C. 105,000.00
B. 10,000.00 D. 110,000.00

____9. If an asset increases in 150,000 and liability is 70% of the asset. How much is the
equity?
A. 35,000.00 C. 53,000.00
B. 45,000.00 D. 54,000.00

____10. The liability has increased by 450,000, an increase is 30% of equity. How much
is the asset?
A. 159,900.00 C. 1,599,000.00
B. 195,000.00 D. 1,950,000.0

Let’s Explore and Discover

Have you been to Puerto Princesa Baker’s Hill? It’s a

hilltop bakery theme park where you can enjoy the
UNLOCKING fairytale-themed landscapes, mini-botanical gardens,
OF DIFFICULTIES and children's playground. Have you tried the seesaw or
the wooden balancing scale in the playground? It’s really
Business Transaction fun riding those, right?
are events/ activities
Did you know that a wooden balancing scale or a
that could be monetary
and can affect the balancing scale is like an accounting equation? Two or
assets, liabilities and both sides must have an equal value to maintain a
owner’s equity. balance. Imagine that an exchange is like balancing a
scale. Can you think and give an example of a simple
The words “balance” business transaction?
or “equal” in this
lesson applies to the Selling of Palawan souvenir
accounting equation items worth 1,500 pesos.
where the value of an
asset must be equal to
When you sell the souvenir, the
liabilities and equity.
scale will go down, but if you
receive your cash as payment,
the other side will react and
makes your scale balance or
equal again.

Accounting uses a method to show how a business transaction changes the business's
resources while maintaining a balance or showing the equal value of the exchange. The
accounting equation is a tool that is used throughout accounting activities to show how
transactions affect the asset, liability, and owner's equity accounts.

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ACCOUNTING EQUATION

Stated as:

ASSETS = LIABILITIES + OWNER’S EQUITY

This equation shows the relationship between the three (3) major accounts used in
Accounting: the assets, liabilities, and owner’s equity.
The accounting equation connotes that the total assets (what the company owns)
equal the total amount of liabilities (what the company owes) and the owner’s equity (what
is left or the residual interest of the owner). Other times, the equation appears as:

ASSETS - LIABILITIES = OWNER’S EQUITY

Or
ASSETS - OWNER’S EQUITY = LIABILITIES

Illustration: If the assets worth is 300,000 and the liabilities worth is 250,000, how much
is your equity?

ASSETS = LIABILITIES + OWNER’S EQUITY

300,000 = 250,000 + ?
Answer:
Using the accounting equation, we have OE = A – L
OE= 300,000 -250,000
OE = 50,000.00

EXPANDED ACCOUNTING EQUATION

In this equation, the transactions or accounts that directly affect change in the
owner’s equity are included.

ASSETS = LIABILITIES + EQUITY

+ Investment
+ Income
- Drawings
- Expense
The expanded accounting equation is:
Assets = Liabilities + Owner’s Equity (Investment + Revenue – Expense – Drawings)
Or
Assets + Expense + Drawings = Liabilities + Investment + Revenue

Let’s focus on this:

Equity = Beg. Capital / Investment + Revenue – Expenses – Drawings

Example: The owner invested 250,000 to the business and earns 45,000 revenues,
incurred 10,000 expenses, and withdrew 5,000 for personal use before the
period ended. How much is the equity?

Illustration:
Investment 250,000
Add: Revenue 45,000
Less: Expenses 10,000
Less: Drawings 5,000
Equity 280,000

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Your owner’s equity is 280,000 based on the computation. Using the accounting equation
if the liability is 210,000.00, how much is the asset?

ASSETS = LIABILITIES + OWNER’S EQUITY

? = 250,000 + 280,000
Using the equation: A = L + OE
A = 250,000 + 280,000 or Assets = 530,000.00

TYPES AND EFFECTS OF TRANSACTIONS IN THE ACCOUNTING EQUATION

I. SOURCE OF ASSETS (SA). An asset account increases and a corresponding claims

(liabilities or owner’s equity) account increases.

➢ INCREASE in ASSET = INCREASE in OWNER’S EQUITY (SA)

Business transaction: A. The owner invested 50,000 cash (an asset) to the business.
B. Received cash from customer 3,000 for services rendered.

Illustration:
ASSETS = LIABILITIES + EQUITY
a. 50,000 (Cash) = 0 + 50,000(Capital)
b. 3,000 (Cash) = 0 + 3,000 (Service Income)

➢ INCREASE in ASSET = INCREASE in LIABILITY (SA)

Business transaction: C. The company purchased 1,000 worth of supplies (an asset) on
account (an obligation)
D. Borrowed money from the bank, 30,000.00.

Illustration:
ASSETS = LIABILITIES + EQUITY
c. 1,000 (Supplies) = 1,000 (Accounts Payable) + 0
d. 30,000 (Cash) = 30,000 (Loan Payable) + 0

II. EXCHANGE OF ASSETS (EA). One asset account increase, and another asset account
decreases.
➢ DECREASE in ASSETS = INCREASE in another form of ASSETS (EA)
Business transaction: E. Bought supplies (an asset) for cash (an asset), 500.00.
F. The company collected receivables, 800.00.

Illustration:
ASSETS = LIABILITIES + EQUITY
e. -500 (Cash) +500 (Supplies) = 0 + 0
f. -800 (Account Receivable) +800 (Cash) = 0 + 0

III. USE OF ASSETS (UA). An asset account decreases and a corresponding claim (liability
or owner’s equity) account decreases.

➢ DECREASE in ASSET = DECREASE in OWNER’S EQUITY (UA)

Business transaction: G. Payment of Utilities Expenses, 2,000
H. Withdrawals made by the owner,1,000
Illustration:
ASSETS = LIABILITIES + EQUITY
g. -2,000 (Cash) = 0 + -2,000 (Utility Expense)
h. -1,000 (Cash) = 0 + -1,000 (Drawings)

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 ➢ DECREASE in ASSET = DECREASE in LIABILITY (AU)
Business transaction:
I. Paid cash for supplies previously purchased on account (a liability), 1,000.00
*The liability (refer to Tran. “C”) when paid decreases (Tran. “I”). In this case, there
is no more accounts payable left.

Illustration:
ASSETS = LIABILITIES + EQUITY
i. – 1,000 (Cash) = -1,000 (Accounts Payable) + 0

IV. EXCHANGE OF CLAIMS (EC). One claims account (liability or owner’s equity) increase
and another claims account (liability or owner’s equity) decreases.

➢ INCREASE in LIABILITY = DECREASE in OWNER’S EQUITY

Business transaction:
J. The company received electric bill to be paid next month,1,100.00
(Expense incurred but not yet paid)
Illustration:
ASSETS = LIABILITIES + EQUITY
j. 0 = 1,100 (Utilities Payable) + -1,100 (Utilities Expense)

➢ DECREASE in LIABILITY = INCREASE in OWNER’S EQUITY

Business transaction:
K. Rendered service on the amount previously received but not yet earned, 1,000.00
*It happens if there was recorded unearned revenue (a liability). Then, it was
rendered to the customer (Service Income).

Illustration:
ASSETS = LIABILITIES + EQUITY
k. 0 = -1,000 (Unearned Revenue) + +1,000 (Service Income)

The table below summarizes the effects of business transactions on the accounting
equation. Notice that there are accounts under the major accounts.

ASSETS = LIABILITIES + OWNER’S EQUITY

(Source: Carlsberg S. Andres, Arthur P. Barrido, Jr., Christopher B. Honorario, Fundamentals of

ABM 1-Teacher’s Guide, Quezon City: Commission on Higher Education, 2016, 41-51.)

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 Let’s Practice

Directions: Identify whether the accounting

ACTIVITY 1 equation is correct or not. Put if the equation is
CORRECT, and X if the equation is WRONG.

Directions: Compute and complete the accounting

equation. The 1st equation was answered as an ACTIVITY 2
example.

ASSETS = LIABILITIES + EQUITY

(Beg. Capital + Revenue – Drawings – Expense)
Capital Profit Drawings Expenses
A 500,000 = 300,000 + 200,000 80,000 30,000 50,000
B 450,000 = 90,000 + 360,000 500,000 ? 140,000
C 300,000 = 70,000 + 150,000 ? 50,000 60,000
D ? = 250,000 + 130,000 80,000 20,000 40,000
E 500,000 = 350,000 + ?
F 240,000 = ? + 100,000

How can you prove that for every transaction the accounting equation should always be
balanced? Briefly explain your answer.
_____________________________________________________________________________________
_____________________________________________________________________________________
_____________________________________________________________________________________
_____________________________________________________________________________________

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 Let’s Do More

Directions: Analyze each transaction. Tell if the assets,

ACTIVITY 1 liabilities, and equity are affected by writing INC for
Increase, DEC for decrease and NE for not affected

Assets = Liabilities + Owner's

TRANSACTIONS
Equity
1. Mr. Cruz invested 30,000.00 in the
business called Cruz Repair Shop. INC NE INC
2. Purchased 2,000.00 of supplies
on account.
3. Bought equipment amounted to
8,000.00 for cash.
4. Performed service and received
3,000.00 cash.
5. Paid supplies previously
purchased on account, 1000.00.

Directions: Illustrate the following transaction in the

accounting equation using the worksheet below. Use + ACTIVITY 2
and – sign to indicate the effect of each transaction.

Transactions:
A Invest 10,000 cash in the business.
B Bought supplies on account, 3,000.
C Withdraw cash 1,000 for personal use.
D Paid 3,000 worth of supplies on account.
E Received 4,000 for the services rendered.
Assets Liabilities Owner’s Equity
Cash+ Supplies Accounts Payable Capital + Revenue
-Expenses – Drawings
A +10,000 0 + 10,000
B
C
D
E
Total

How is the accounting equation useful in solving business transactions? Briefly explain
your answer.
________________________________________________________________________________________
________________________________________________________________________________________
________________________________________________________________________________________

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 Let’s Sum It Up
Activity 1
Directions: Answer the following question by ticking (/) the correct box. You can select two
or more answers.

1. The basic accounting equation is?

Assets + Equity = Liabilities

/ Assets = Liabilities + Equity

2. Other times, the accounting equation can appear as;

Assets – Equity = Liabilities
Equity = Assets - Liabilities
Equity = Liabilities – Assets
Liabilities = Assets + Equity

3. The expanded accounting equation is stated as:

Assets = Liabilities +Owner’s Equity (Investment -Revenue– Expense +Drawings)

Assets = Liabilities +Owner’s Equity (Investment +Revenue– Expense-Drawings)

Activity 2
Directions: Choose from the box the correct answer to each question. Write the acronym
that represents your answer inside the circle.

SA = Source of Asset
UA = Use of Asset
EA = Exchange of Asset
EC = Exchange of Claims

EA Increase in Assets and Decrease in other forms of Assets

Increase in Liability and Decrease in Owner’s Equity (vice versa)

Decrease in Assets and Decrease Liabilities or Owner’s Equity

Increase in Assets and Increase in Liabilities or Owner’s Equity

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 Let’s Assess
Directions: Read each question carefully. Write the letter of the correct answer on the space
provided before the number.

____1. Which of the following transactions increase the equity?

A. Borrowed money from the bank C. Purchase of land
B. Paid salaries of employees D. Rendered service to customer

____2. The owner withdrew cash for personal use. What is the effect of this transaction?
A. Decrease and increase in assets
B. Decrease in asset, decrease in equity
C. Decrease in equity, decrease in liability
D. No effect in asset, liabilities and owner’s equity

____3. The liability has increased by 450,000, an increase is 30% of equity. How much is
the asset?
A. 159,900.00 C. 1,599,000.00
B. 195,000.00 D. 1,950,000.00

____4. What is the accounting equation?

A. Assets = Liabilities + Equity C. Assets + Liabilities = Equity
B. Assets +Equity = Liabilities D. Assets -Liabilities + Equity

____5. If the company has the assets of 45,000 and the owner’s equity of 23,000, how
much is the liability?
A. 20,000.00 C. 24,000.00
B. 22,000.00 D. 26,000.00

____6. If an asset increases in 150,000 and liability is 70% of the asset. How much is the
equity?
A. 35,000.00 C. 53,000.00
B. 45,000.00 D. 54,000.00

____7. Which is TRUE about the expanded accounting equation?

A. Assets - Capital = Income-Expense
B. Assets - Expense = Liabilities + Capital -Income
C. Assets + Income = Liabilities + Capital - Expense
D. Assets + Expense = Liabilities + Capital + Income

____8. The owner invested 100,000 and the company has 30,000 revenue and 20,000
expenses. Before the period ends, the owner withdrew 5,000 for personal use. How
much is the equity?
A. 5,000.00 C. 105,000.00
B. 10,000.00 D. 110,000.00

____9. Allen Company buys a laptop computer on credit/on account for 50,000. The
transaction will affect the_________?
A. assets only C. assets, liability and equity
B. assets and liability only D. liabilities and owner’s equity

____10. Which of the following is NOT an element of accounting equation?

A. Assets C. Owner’s Equity
B. Liabilities D. Profit

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 Answer Key

Let’s Try
1. D 2. A 3. D 4. D 5. B 6. B 7. B 8. C 9. B 10. D

Let’s Practice
Activity 1: Activity 2
CHECK / /
A. 300,000
*Assets = Liabilities + Capital
B. 360,000
*Assets - Liabilities = Owner’s Equity
C. 190,000
*Assets= Liability + Revenue + Profit -Expenses – Drawing
D. 400,000
*Assets - Owner’s Equity = Liabilities
E. 150,000
EXIS / X
F. 140,000
*Assets = Liabilities – Capital
* Assets + Liabilities = Owner’s Equity
*Assets = Liabilities - Revenue + Profit – Expenses + Drawings
*Assets + Owner’s Equity = Liabilities

Let’s Do More
Activity 1 Activity 2
Assets = Liabilities + Owner’s Equity Assets = Liabilities + Equity
1. INC NE INC A. +10,000 0 +10,000
2. INC INC NE B. + 3,000 +3,000 0
3. INC/DEC NE NE C. -1,000 0 -1,000
4. INC NE INC D. -3,000 -3,000 0
5. DEC DEC NE E. +4,000 0 +4,000
Total 13,000 0 13,000

Let’s Sum It Up
Activity 1: Activity 2:
1. Asset = Liability + Equity
2. Asset – Equity = Liability / Equity = Assets – Liability 1. EA 3. UA
3. Asset= Liability + Equity (Investment+ Revenue– Expenses -Drawings) 2. EC 4. SA

Let’s Assess
2. D 2. B 3. D 4. A 5. B 6. B 7. D 8. C 9. B 10. D

References
Teacher’s Guide

Andres, Carlsberg S., Arthur P. Barrido, Jr., and Christopher B. Honorario. Fundamentals
of Accountancy, Business, and Management 1. Quezon City: Commission on Higher
Education. 2016.

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