ACCOUNTING EQUATION

Left Side Right Side

LIABILITIES
P500,000

ASSETS =
P1,000,000
EQUITY
P500,000
 ACCOUNTING EQUATION
Left Side Right Side

LIABILITIES
P300,000

ASSETS =
P1,000,000
EQUITY
P700,000
 ACCOUNTING EQUATION
Left Side Right Side

LIABILITIES
P700,000
ASSETS
P1,000,000
=
EQUITY
P300,000
1. Given liabilities of P50,000 and the equity of P150,000, find the value of assets.

2. Given assets of P180,000 and the equity of P110,000, find the liabilities.

3. Given assets of P250,000 and liabilities of P90,000, find the equity.

Find the missing amounts.

ASSETS LIABILITIES EQUITY

1. 650,000 340,000
2. 295,000 305,000
3. 967,000 660,000
4. 788,000 345,000
5. 845,000 533,000
 EFFECT OF TRANSACTIONS
Transaction Assets Liabilities Owner’s Equity Analysis

1. Owner invests cash in Assets increase. Capital increases. Cash increases because owner
the business. invests cash in the business
which is an asset. Owner’s
interest in the business increases
as represented by an increase in
capital.
2. Owner invests furniture. Assets increase. Capital increases. Assets increases because owner
invests furniture in the business
which is an asset. Owner’s
interest in the business increases
as represented by an increase in
capital.
 EFFECT OF TRANSACTIONS
Transaction Assets Liabilities Owner’s Equity Analysis

3. Owner withdraws cash Assets decrease. Capital Assets decreases because owner
for personal use. decreases. withdraws cash which is an asset.
Owner’s interest in the business
decreases because of the
withdrawal as represented by a
decrease in capital.
4. Owner purchases Assets increase Supplies increase because of the
supplies using cash. Assets decrease purchase but cash will decrease
because of the payment. Since
both are assets, one asset
increases while another asset
correspondingly decreases.
 EFFECT OF TRANSACTIONS
Transaction Assets Liabilities Owner’s Equity Analysis

5. Owner gets cash refund Assets decrease Cash

for returning damaged Assets increase
supplies bought on cash.
6. Owner purchases Assets increase Supplies increase because of the
supplies using cash. Assets decrease purchase but cash will decrease
because of the payment. Since
both are assets, one asset
increases while another asset
correspondingly decreases.
7. Owner makes additional Assets increase Capital increases Assets increase because owner
cash investment. invests additional cash in the
business which is an asset.
Owner’s interest in the business
increases because of the
investment as represented by an
increase in capital.
 EFFECT OF TRANSACTIONS
Transaction Assets Liabilities Owner’s Equity Analysis

8. Owner withdraws Assets decrease Capital decreases Assets decreases because owner
supplies for personal use. withdraws supplies from the
business which is an asset.
Owner’s interest in the business
decreases because of the
withdrawal which is represented
by a decrease in capital.
Give the effect of the following on the assets of the business. Put check mark under the appropriate column.

Increase Decrease No Effect

1. Owner invested equipment.
2. Bought office computer on account.
3. Paid the office computer in number 2.
4. Owner withdrew cash.
5. Owner withdrew furniture.
Give the effect of the following on the equity of the business. Put check mark under the appropriate column.

Increase Decrease No Effect

1. Owner invested equipment.
2. Bought office computer on account.
3. Paid the office computer in number 2.
4. Owner withdrew cash.
5. Owner withdrew furniture.
Give the effect of the following on the assets and equity of the business. Write I for increase, D for Decrease, ID
for both.

Assets Owner’s Equity

1. Owner invested cash and computer.
2. Owner purchased furniture using cash.
3. Owner withdrew cash for personal use.
4. Owner returned supplies bought using cash.
5. Purchase of supplies for personal use.
 EFFECT OF TRANSACTIONS
Transaction Assets Liabilities Owner’s Equity Analysis

1. Rendered services for Assets increase Capital increases Assets increase because owner
cash collected cash as a result of
services rendered. Owner’s
equity increase because the
business earned income for
services rendered.
2. Rendered services on Assets increase Capital increases Assets increase because of
credit account collectible from the
customer which is an asset as a
result of services rendered.
Likewise, owner’s equity
increases because of income
earned from services rendered.
 EFFECT OF TRANSACTIONS
Transaction Assets Liabilities Owner’s Equity Analysis

3. Paid telephone bill Assets decrease Capital decreases Assets decrease because owner
pays cash for the telephone bill.
Owner’s equity decreases
because the telephone bill
represents utilities expenses
which decreases capital.
Give examples of the following transactions:

1. Transactions that increase the assets of a business.

2. Transactions that increase owner’s equity.
3. Transactions that increase both assets and owner’s equity.
4. Transactions that decrease assets of the business.
5. Transactions that decrease the owner’s equity.
6. Transactions that decrease both assets and owner’s equity.
7. Transactions that increases one asset but decreases another.
Give the effect of the following transactions on the assets and owner’s equity:

Assets Owner’s Equity

1. Customer paid cash for services rendered.
2. Paid employees’ salaries.
3. Received a note for services rendered.
4. Rendered services on credit.
5. Paid electricity bill received.
 EFFECT OF TRANSACTIONS
Transaction Assets Liabilities Owner’s Equity Analysis

1. Owner invests cash Increase No effect Increase An entity separates and distinct
from the owner is created. The
cash investment of the owner
increases the assets of the
business and the capital of the
owner.
2. Owner invests Increase No effect Increase The equipment increases the
equipment assets of the business. Since this
is an investment of the owner,
capital f the owner increases
correspondingly.
 EFFECT OF TRANSACTIONS
Transaction Assets Liabilities Owner’s Equity Analysis

3. Renders services for cash Increase No effect Increase The business earned an income
by rendering services and
collecting revenues in cash. The
effect in the accounting equation
is an increase in capital as
revenue increases capital.
4. Renders services on Increase No effect Increase Assets increase by the amount of
credit revenue expected to be collected
from the customer to whom the
services were rendered. Capital
also increases since rendering of
services represents revenue.
 EFFECT OF TRANSACTIONS
Transaction Assets Liabilities Owner’s Equity Analysis

5. Collects account in Increase/Decrea No effect No effect Assets increases as there is cash

transaction in #4. se inflow in the amount of the
collection. However, assets
correspondingly decrease with
the amount of the collection as
the accounts receivable, an asset
account, will decrease. This is
because the amount the
customer owes has already been
collected.
6. Purchase supplies on Increase Increase No effect Supplies increase the assets of
credit the business and the liabilities
correspondingly increase as the
supplies were bought on
account.
 EFFECT OF TRANSACTIONS
Transaction Assets Liabilities Owner’s Equity Analysis

7. Returns defective Decrease Decrease No effect Assets decrease with the amount
supplies of supplies returned. Liabilities
correspondingly decrease as the
returned supplies decrease the
amount owed.
8. Pays the supplies bought Decrease Decrease No effect The transactions is a payment of
on account or credit account. Since there is a cash
outflow representing the
payment of an existing liability,
assets decrease in the amount of
cash paid and liabilities decrease
in the amount of the liability on
supplies.
 EFFECT OF TRANSACTIONS
Transaction Assets Liabilities Owner’s Equity Analysis

9. Borrows cash issuing a Increase Increase No effect Cash increases the assets of the
note business as there is an inflow of
cash because the business
borrowed money. Notes payable
increases the liabilities of the
business as it represents an
obligation on the part of the
business to pay at a future date.
10. Purchases land using Increase/Decrea No effect No effect Land increases the assets of the
cash se business but cash
correspondingly decreases due
to the payment for the purchase
of land.
 EFFECT OF TRANSACTIONS
Transaction Assets Liabilities Owner’s Equity Analysis

11. Pays utilities expense Decrease No effect Decrease Payment represents cash outflow
for the month decreasing the assets of the
business. Expenses decrease the
capital as they have opposite
effect on income.
12. Pays the note in full Decrease Decrease No effect The transaction is a payment of
liability. Since there is a cash
outflow representing the
payment of the note, assets
decrease in the amount of cash
paid and liabilities decrease in
the amount of the notes payable.
 EFFECT OF TRANSACTIONS
EXAMPLE

Transaction Assets Liabilities Owner’s Equity

1. Ms. Lim invests cash. P900,000 Increase No effect Increase

CASH Lim, Capital
P900,000 P900,000
2. Ms. Lim invests equipment. Increase No effect Increase
P60,000 EQUIPMENT Lim, Capital
P60,000 P60,000
3. Renders P45,000 services for cash Increase No effect Increase
CASH SERVICE INCOME
P45,000 P45,000
4. Renders P19,000 services on credit Increase No effect Increase
ACCOUNTS RECEIVABLE SERVICE INCOME
P19,000 P19,000
 EFFECT OF TRANSACTIONS
EXAMPLE

Transaction Assets Liabilities Owner’s Equity

5. Collects account in transaction #4 Increase No effect No effect

CASH
P19,000

Decrease
ACCOUNTS RECEIVABLE
P19,000
6. Purchases P1,500 supplies on Increase Increase No effect
credit SUPPLIES ACCOUNTS PAYABLE
P1,500 P1,500
7. Returns P400 defective supplies Decrease Decrease No effect
SUPPLIES ACCOUNTS PAYABLE
P400 P400
 EFFECT OF TRANSACTIONS
EXAMPLE

Transaction Assets Liabilities Owner’s Equity

8. Pays the supplies bought on Decrease Decrease No effect

account or credit CASH ACCOUNTS PAYABLE
P1,100 P1,100
9. Borrows P90,000 cash issuing note Increase Increase No effect
CASH NOTES PAYABLE
P90,000 P90,000
10. Purchases P400,000 land paying Increase No effect No effect
cash LAND
P400,000

Decrease
CASH
P400,000
 EFFECT OF TRANSACTIONS
EXAMPLE

Transaction Assets Liabilities Owner’s Equity

11. Pays utilities expense for the Decrease No effect Decrease

month P1,400 CASH UTILITIES EXPENSE
P1,400 P1,400
12. Pays the note in full Decrease Decrease No effect
CASH NOTES PAYABLE
P90,000 P90,000
Give the effect of the following transactions on accounting equation:

1. Owner invested cash in the business. 11. Owner withdrew cash for personal use.
2. Rendered services in cash. 12. Receive PLDT bill for telephone services.
3. Purchased supplies for cash. 13. Paid PLDT bill.
4. Rendered services on account to Ms. Lee. 14. Rendered services to Mr. Dee on account.
5. Purchased furniture on account from IKEA. 15. Received note for services rendered to Mr. Garcia
6. Collected payment from Ms. Lee. 16. Mr. Garcia paid interest on the note
7. Partial payment made to IKEA. 17. Mr. Garcia paid note in full
8. Owner invested computer in the business. 18. Mr. Dee issued note in lieu of his account.
9. Paid IKEA in full. 19. Received partial payment from Mr. Dee.
10. Owner withdrew cash for personal use. 20. Paid electricity bill to ISELCO.
 Give the effect of the following transactions on accounting equation:
On July 15, 2022 John Doe opens JD Collection Services. On the transaction summary table below, indicate the
effect of each transaction on each account. Put “+” to signify increase or “-” to signify decrease. Indicate the
amount of the change for each account. The first one is done for you.

Owner’s
Assets Liabilities
Equity
Transaction
Accounts Accounts Notes
Cash Supplies Doe, Capital
Receivable Payable Payable
1. John Doe invested + +
P100,000 in the business. P100,000 P100,000
2. Bought P1,500 worth of
supplies for cash.
 Owner’s
Assets Liabilities
Equity
Transaction
Accounts Accounts Notes
Cash Supplies Doe, Capital
Receivable Payable Payable
3. Borrowed P50,000 from
Ronald Farrell.
4. Cash services rendered to
Ms. Khan, P34,000.
5. Issued a note for the
amount borrowed from Mr.
Farrell.
6. Services rendered to client
on account, P7,000.
 Owner’s
Assets Liabilities
Equity
Transaction
Accounts Accounts Notes
Cash Supplies Doe, Capital
Receivable Payable Payable
7. Settled the note with Mr.
Farrell.
8. Paid P12,000 worth of
personal expenses from the
company fund for a Palawan
vacation.
9. Made cash withdrawal of
P20,000.
10. Hired office secretary with
monthly salary of P12,000.
 Owner’s
Assets Liabilities
Equity
Transaction
Accounts Accounts Notes
Cash Supplies Doe, Capital
Receivable Payable Payable
11. Collections from various
clients amounting to P33,000
for services rendered.
12. Returned P300 worth of
defective supplies bought
using cash.
13. Invested additional cash,
P16,000
14. Full collection of account
from all clients, P10,000