Note: Kung sasagot po kayo ng pre and post assessment, sa inline comment po kayo sumagot para ma-check ko. At kung may mga tanong kayo, I already provided a statement for inline comments. Good luck and enjoy learning!

Additional: Ang maraming scores sa post assessments ay bibigyan ko ng tips (any tips, pwedeng tips sa pag-aaral o kung paano sasagot ng business transactions). I'll send it through PM so, answer wisely!

(Before proceeding, kindly minimize your font size for you to have a better illustrations for our lesson today. I'm really sorry for the inconvenience since I only used my tablet for writing. But don't worry, I'll find some ways to let you have a better illustrations for our next lesson.)

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3.0 The Accouting Equation

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For this lesson, students need to understand the elements of the accouting equation and use it to solve an accounting problem.

We discussed in our previous chapter the top 5 major accounts which are assets, liabilities, owner's equity, income and lastly, expenses.

You learned that assets are resources owned by the business and examples are cash, accounts receivable, prepaid expenses, etc.

Liabilities are obligations by the business. Examples are accounts and notes payable.

And you learned that OE (Owner's Equity) is the residual interest of the owner of the business. This means that any assets left after paying liabilities are the rights of the owner of the business.

Now let's proceed to our main topic: the accounting equation.

The accounting equation: Assets is equal to liabilites and equity or owner's equity.

To illustrate: ASSETS = LIABILITIES + EQUITY

Remember: the accounting equation should always be balanced.

To effectively understand the accounting equation, here are the examples:

On January 1, Ms. Yoan invested cash Php150,000 to her business.
-----------------------------------------------------------------------------
      ASSETS     =      LIABILITIES     +      EQUITY
-----------------------------------------------------------------------------
      Cash           =                                 +   Yoan, Capital
Php150,000                                               Php150,000
-----------------------------------------------------------------------------

In the illustration above, only assets and equity are increased while liabilities is not affected. Why? Because Ms. Yoan only invested money to her business and didn't had any obligations. Makikita mo rin sa illustration na balance ang assets at equity.

On January 3, Ms. Yoan purchased office equipment amounting to Php20,000 on cash basis.
-----------------------------------------------------------------------------
      ASSETS      =     LIABILITIES     +     EQUITY
-----------------------------------------------------------------------------
      Cash            =                                +  Yoan, Capital
Php130,000                                              Php150,000

Equipment
Php20,000
-----------------------------------------------------------------------------

Nagtataka ka siguro kung bakit naging Php130,000 na lang ang Cash kung originally Php150,000 'to? Read the transaction again. Sabi ro'n, Ms. Yoan purchased office equipment on cash basis. Ibig sabihin, gumamit siya ng cash para bilhin niya 'yong equipment for Php20,000. And for the equity, hindi siya apektado kasi wala naman kailangan i-de-decrease. 'Di ba, balanse pa rin sila?

On January 5, Ms. Yoan withdrew from the business Php12,500 for personal use.
-----------------------------------------------------------------------------
      ASSETS     =     LIABILITIES     +     EQUITY
-----------------------------------------------------------------------------
Cash                 =                                 + Yoan, Capital
Php117,500                                              Php150,000

Equipment                                           Yoan, Drawings
Php20,000                                              (Php12,500)*
-----------------------------------------------------------------------------

* open and close parentheses means of subtraction

Sa nakikita niyo, ang kaninang Php130,000 na Cash ay naging Php117,500 kasi Ms. Yoan withdrew cash from business. Hindi lang Cash ang maapektuhan kun 'di ang Capital din. Pero kahit gano'n, balanse pa rin naman sila.

On January 7, Ms. Yoan purchased supplies for Php5,000 on account.
-----------------------------------------------------------------------------
     ASSETS     =     LIABILITIES     +     EQUITY
-----------------------------------------------------------------------------
Cash               = Accounts Payable  + Yoan, Capital
Php117,500            Php5,000               Php150,000

Equipment                                         Yoan, Drawings
Php20,000                                             (Php12,500)

Supplies
Php5,000
-----------------------------------------------------------------------------

As you can still see, Cash remained Php117,500 and we added Supplies for Php5,000. Again, refer to our transaction. Sabi ro'n, Ms. Yoan purchased supplies on account, ibig sabihin, inutang. At dahil hindi Cash ang ginamit niya at asset natin ang Supplies, ganiyan ang nangyari. Kung ating i-ko-compute, balanse pa rin sila. Basta ang lagi nating tatandaan, palaging balanse ang assets sa liabilities at equity.

Question: Paano kung hindi mag-balanse?

Answer: there's something wrong in your entries. Pwedeng ibang figures or amounts ang nalagay mo (like, instead of 117,500 nasulat mo 171,500) or mali ang pag-compute mo.

Tip: read the transactions over and over again. I know this is ridiculous but this way, you can fully understand the transaction. Kung naintindihan mo ang pinapahiwatig ng transactions, alam mo na kung anong gagawin at ilalagay mo sa inyong entries.

Another tip: Review your answers. 'Wag tatamad-tamad at siguraduhin na tama ang naisulat mo. Kasi kung hindi, babalikan mo talaga 'yan nang paulit-ulit para tumama at mag-balance (buti pa accounting, babalikan hahaha)

Now, moving on.

On January 9, Ms. Yoan, once again, withdrew Php5,000 from the business for personal use.
-----------------------------------------------------------------------------
     ASSETS     =     LIABILITIES     =     EQUITY
-----------------------------------------------------------------------------
Cash               = Accounts Payable  + Yoan, Capital
Php112,500        Php5,000                   Php150,000

Equipment                                          Yoan, Drawings
Php20,000                                            (Php12,500)

Supplies                                               Yoan, Drawings
Php5,000                                               (Php5,000)
-----------------------------------------------------------------------------

No need to explain kasi alam 'kong naintindihan niyo na 'yan. At para malaman ko kung naintindihan niyo ba talaga, i-comment niyo rito kung bakit naging ganiyan ang Cash at bakit may another Drawings -->

Note: I'll be giving points to those who will answer hehe bibigyan ko kayo ng sandamakmak na tips and one-on-one sessions sa PM.

Bibigyan ko ulit kayo ng examples (I'll add the revenue and expenses here for you to fully understand)

• On August 2, Mavelle Yoan deposited Php500,000 cash in a back account in the name of the business.

• On August 4, Purchased office equipment for Php250,000 on account.

• On August 6, Paid rental for the month of August, Php5,500

• On August 6, Ms. Yoan withdrew Php2,003 from the business for personal use.

• On August 10, the business earned and collected income for Php20,000.

-----------------------------------------------------------------------------
     ASSETS     =     LIABILITIES     +     EQUITY
-----------------------------------------------------------------------------
Cash                                                  + Yoan, Capital
Php512,497                                          Php500,000

Equipment   = Accounts Payable  + Rent Expense
Php250,000           Php250,000           (Php5,500)

                                                            Yoan, Drawings
                                                              (Php2,003)

                                                            Service Revenue
                                                              Php20,000
-----------------------------------------------------------------------------
Php762,497   =      Php250,000       +  Php512,497
-----------------------------------------------------------------------------

[ ask questions here --> ]

Now, it's your turn!

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POST ASSESSMENT

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Always Remember: A = L + OE

TEST I. Directions: Compute the missing amounts in the following (10pts).

1. Assets - 60,000 Liabilities - 40,000 Equity- ?

2. Assets - 50,000 Liabilites - ? Equity - 30%

3. Assets - ? Liabilities - 40% Equity - 45,000

4. Assets - 85,000 Liabilities - ? Equity - 63,750

5. Assets - ? Liabilities - 50% Equity - 35,000

TEST II. Directions: Calculate the missing amount (with solution, 10pts).

1. Loki Mendez has obligation of P50,000. If the total assets are P550,450, how much is the amount of owner's equity?

2. Deib Lohr Enrile's residual interest showed a balance of P150,000. If it claims an ownership in assets worth P500,000, how much is the liabilities?

3. Brixton Wenz Cardinal has an owner's equity of P700,000 and a financial obligation of P330,033, how much is the firm's total assets?

4. At the end of the period, Lee Jong Suk's brokeage firm has a total assets equal to P709,000 and a total liabilities equal to P505,505. What is the equity of Mr. Lee's brokeage at the end of the period?

5. The ChanBaek couple put up a coffee business with initial capital of P614,000. Out of P614,000 cash, they purchased equipment amounting to P112,792 on account. They also purchased supplies to be used in the business amounting to P5,692 on cash basis. At the end of the year, how much is the residual interest of the ChanBaek couple?

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If you learned a thing or two, share it with others! 'Til next session, dear learners!

- MJ