The Iundamental accounting equation can be stated as:

ASSETS EQUITIES
ASSETS Creditors` Equities Owner`s Equities
ASSETS Liabilities Capital
The equation may also be expressed as:
Liabilities Assets Owner`s Equity
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Owner`s equity Assets Liabilities
ASSETS are economic resources oI an enterprise that are recognized as all things at value
owned by the business.
O Examples :
Cash and cash equivalents
Receivables ( trade& non trade )
Property (Land and building )
Equipment
Furniture and Iixtures
Prepaid expenses
Investment in stocks/ bonds
LIABILITIES are economic obligations oI an enterprise to other individuals or to organization
due to varied reasons such acquisition oI supplies, equipment , inventories and services on credit
/on account /on notes.
O Examples :
Accounts /notes payable
Bank loans payable
Utilities payable
Accrued expenses
Unearned income
ER`S EQUITY or CAPITAL is the residual value /interest derived aIter deducting total
liabilities Irom the total assets oI an enterprise Its composition are owner`s initial and additional
investment, net income oI the business which is net oI owner`s personal withdrawals.
O Example :
ASSETS LIABILITES OWNER`S EQUITY
P 500,000 0 P 500,000

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Activity 1A
Machine Problem 1
5en Microsoft Excel and Save the file name Equation:
1. Click column and drag to E column.
2. Click on ormatmenu, click column, click width type 1 and then click OK. This to
expand column width.
3. Click on ormat menu. Click Cells, click ccounting, Click Symbol box, click Aone
and then click OK
4. Click column, click on ormat menu, click column, and click width, type 4 and then
click OK. This is to reduce the column width.
5. Click D column, column ormat menu, click column, and click width. Type 3, and then
click OK.
6. Click at cell C1, Click Center button on the ormat bar and type. 1HE CCOUA1IAC
EQU1IOA.
7. Type the abels and and + signs at cell 3, 3, C3, D3 and E3 as shown in Figure
1.1 (Note : when you type labels you can press
to go to the next cell but when you type + - or / ( These are mathematics
operations ) press EA1ER iI you are not making Iormula
1.
Click at a cell and type C + E, but do not press Enter.
2. Place the + at the bar end - until it turns + and drag it to and release the button. This
how to copy.
3. Type the abels and + and - signs at cells ,, D and E as shown in figure 1.1
4. Click at cell 11 and type press to C11, type - press to E 11 and press
Enter . This is how make Iormula
5. Click at cell 11, place the + at the bar end - until it turns to + and drag it to 13 and
release the button.
6. Type the abels and + and - signs at cells 1 and a1, 1, C1 ,D1 and E1 as
shown in igure 1.1
7. Click at cell 18. Now make the Iormula by Iollowing the #12. Then copy the Iormula up
to by Iollowing #13.
8. Now enter the amounts (without commas) below at cells indicated and compare the
results as shown in Iigure 1.1 At
1.
4 C5 40000
4 C6 50000
4 C7 60000
4 E5 80000
4 E6 100000
4 E7 120000
1. Now enter the amounts below at cells indicated at :
C11 120000
C12 150000
C 13 180000
E11 80000
E12 100000
E13 120000
1. Click at cell C11 and drag to C13 , click Copy Button on the Tool bar , then click at
cell C18 and press Enter. Note another way oI copying. The click to C and drag to
C, click copy button on the tool bar then click at cell E18 and press Enter. See results.
2. Insert your USJ in the drive and click SJE on the tool bar.
3. Type Equation, click SJE in the box then reopen your File to review what you have
learned. See igure 1.1 in the next page for comparison.
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THE ACCOUNTING EQUATION
ASSETS LIABILITIES OWNERS`
EQUITY
120,000
40,000
80,000

150,000
50,000
100,000

180,000
60,000
120,000

LIABILITIES ASSETS - OWNER`S
EQUITY
40,000
120,000
80,000

50,000
150,000
100,000

60,000
180,000
120,000

OWNERS`

EQUITY ASSETS - LIABILITES
80,000
120,000
40,000

100,000
150,000
50,000

120,000
180,000
60,000

Figure 1.1

Activity 1B: Repeat the process but substitute the given values as Iollows:
1.
4 C5 400000
4 C6 500000
4 C7 600000
4 E5 800000
4 E6 1000000
4 E7 1200000
C11 1200000
C12 1500000
C 13 1800000
E11 800000
E12 1000000
E13 1200000
1he Expanded ccounting Equation is as follows:
SSE1S III1ES + (OWAER'S EQUI1Y + REJEAUES -EXPEASES)
100,000 10,000 (50,000 50,000 10,000)
Activity 1C
Machine Problem 2:
Record the Iollowing business transactions using the Expanded Accounting Equation Form using
MicrosoIt Excel.
1. Ms. Sun invested P 150,000 cash so open his beauty parlor business.
2. She purchased parlor supplies P20, 000 on account Irom Bing.
3. Purchased equipment P 50,000 paying only 50 as down payment and the balance she
issued a promissory note to HBC.
4. Paid advance rental Ior the parlor 4,000 Ior 2 months.
5. She received cash Ior service rendered P 30,000
6. Pay the supplies in Iull acquired Irom Bing.
7. Billed customer Ior service rendered P 40,000 and received a 15 days note P10, 000 Irom
other customer.
8. Paid accounts with HBC P10, 000 only.
9. Pay salaries P25, 000 and pay utilities 3,000.
10.Ms. Sun made cash personal withdrawal P 5,000.
Requirements:
1. Do activity 1B using Machine program # 1
2. Record the transaction in Activity 1c using MicrosoIt excel .

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Learning bjectives:
1. State the Rules of Debit & Credit.
2. Familiarize with different classification of accounts
3. Know the effect of business transaction in each of the
accounts.
Learning Cell:
Debit is the leIt side oI an account, which is known as DR
Credit is the right side oI an account which is known as CR.
Accounts are used to record the eIIects oI the business transactions. Every account whether
assets, liability, capital, drawings, revenue, or expenses accounts has two sides (the debit and
credit sides).
T- accounts a very useIul and common device to Iacilitate the analysis oI transactions through
debit and credit, the leIt side is the DEBIT while the right side is the CREDIT
Real Accounts are permanent in nature which are the Assets, Liabilities and Owners Equity or
the Balance Sheet Accounts.
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ominal Accounts are temporary in nature usually Ior one accounting period or one operating
cycle oI a business such as #evenues/Income accounts Expenses and Drawings accounts or an
Income Statement Accounts.
ormal Balance oI an account is the increase side oI an account, the usual balance oI an
account.
O Example :Cash account is debited when increases occur and credited when decreases occur.
The normal balance oI Cash is Debit.
Classification of Accounts ormal Balance
Asset Debit (DR)
Liabilities Credit (CR)

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Capital /Owner`s Equity Credit (CR)
Revenues/ Income Credit (CR)
Expenses Debit (DR)
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Drawings Debit (DR)
Any amount entered into the leIt side oI the T accounts Iorm is said to be debited and any
amount entered into the right side oI the T accounts Iorm is said to be credited. The Iollowing
eIIects are used as guidelines in applying to analyze business transactions.
O Increase in one Iorm oI an asset, decrease in another Iorm oI an asset.
O Increase in an asset, increase in liability
O Increase in an asset, increases in owner`s equity
O Decrease in an asset, decrease in liability
O Decrease in an asset. Decrease in owner`s equity
O Increase in one liability , decrease in another Iorm oI liability
O Increase in liability , decrease in owner`s equity
O Example :Ms. London look invested P 100,000 cash to start a business
CASH L. ERS` EQUITY
DR CR DR CR
100,000

100,000
Figure 3.1
Machine Problem # 4:
Using Business Transaction in Machine problem # 3 accomplished the T- accounts Iorms per
account titles and indicates the eIIects oI the Debit and Credit. See Figure 3.1
Business Transactions Ior Machine # 3
Jan 1. Mr. Suave invested cash oI P1, 000,000 to start a dry cleaning business
1. Pay business permit P2, 000.
5. Purchased washing and dry cleaning machine P 300,000 Ior cash.
7. Acquired laundry supplies P 50,000 on account.
10. Received cash P10, 000 Ior laundry service.
12. Billed customer P 30,000 Ior service rendered.
15. Pay salary oI assistant 1,500.
20. Mr Suave made cash withdrawal P20, 000 Ior personal.
25. Collected accounts Irom customer billed last January 12.
30 Pay Accounts on laundry supplies, utilities P 3,000 and salary oI assistant P 1,500.

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