Accounting Equation - costs that are already used or

consumed by the company.

Asset = Liability + Equity
ASSETS INCOME > EXPENSE = Profit
- Economic resources owned INCOME < EXPENSE = Loss
and/or controlled by the company
- Future economic benefits are Asset = Liability + [CAPITAL +
expected to flow to the entity. ADDITIONAL INVESTMENT -
PERSONAL WITHDRAWAL + INCOME
LIABILITIES - EXPENSE]
- Present obligations of the entity Account titles – specific names of each
arising from past events. element of financial statements
- The settlement of which is
expected to result in an outflow Chart of Accounts – complete list of
from the entity. account titles used by a company
ACCOUNT NORMAL IF IF
EQUITY BALANCE DEBITED CREDITED
Assets Debit Increase Decrease
- Residual interest in the assets
Liabilities Credit Decrease Increase
after deducting all of its liabilities. Proprietorshi Credit Decrease Increase
p
ASSETS – LIABILITIES = EQUITY Income Credit Decrease Increase

Asset = Liability + [Proprietorship + Expense Debit Increase Decrease

(Income – Expenses)] ↓ Capital Drawing Debit Increase Decrease

INCOME
ACCOUNT FS ACCOUNT TYPE
PRESENTATION
- increase in economic benefits Assets Balance Real/Permanent
during the accounting period in Sheet
the form of inflows. LIabilitie Balance Real/Permanent
- amount recorded by the company s Sheet
when the performs the services
Proprietorshi Balance Real/Permanent
p
Sheet
or delivers the product to its
Income Income Nominal/Temporary
customers. Statement
EXPENSE Expense Income Nominal/Temporary
Statement
- decreases in economic benefits
during the accounting period in
the form of outflows.
Assets invested by the owner
July 1 - Juan Reyes started a delivery service on July 1, 2023. The following
transactions occurred during the month of July. He invested PHP800,000 cash and cars
amounting to PHP200,000.
ASSET = LIABILITIES + EQUITY
CASH ₱ 800,000 REYES, CAPITAL ₱ 1,000,000
VEHICLE ₱ 200,000

Borrowings from the bank

July 2 – Reyes borrowed PHP100,000 cash from PNB for use in his business.
ASSET = LIABILITIES + EQUITY
CASH ₱ 100,000 LOANS PAYABLE ₱ 100,000

Asset purchased for cash

July 7 – Bought tables and chairs from Orocan and paid PHP45,000 cash.
ASSET = LIABILITIES + EQUITY
CASH ₱ (45,000)
FURNITURES ₱ 45,000

Assets purchased on account

July 15 – Various equipment were purchased on account from Fortune for PHP55,000.
ASSET = LIABILITIES + EQUITY
EQUIPMENT ₱ 55,000 ACCOUNTS PAYABLE ₱ 55,000

Cash withdrawal by the owner

July 18 – Reyes made a cash withdrawal of PHP5,000 for personal use.
ASSET = LIABILITIES + EQUITY
CASH ₱ (5,000) REYES, DRAWINGS ₱ (5,000)
Payment of liability
July 20 – The account due to Fortune was paid in cash.
ASSET = LIABILITIES + EQUITY
CASH ₱ (55,000) ACCOUNTS PAYABLE ₱ (55,000)

Received cash for revenue earned

July 21 – A customer hired the services of Reyes. Cash of PHP15,000 was received
from the customers.
ASSET = LIABILITIES + EQUITY
CASH ₱ 15,000 SERVICE REVENUE ₱ 15,000

Paid cash for expenses incurred

July 22 – Cash was paid for the following: gas and oil, PHP500 and car repairs,
PHP1,000.
ASSET = LIABILITIES + EQUITY
CASH ₱ (1,500) GAS AND OIL ₱ (500)
REPARS EXPENSE ₱(1,000)

Revenue rendered on account

July 24 – Another customer hired the services of Reyes and promised to pay
PHP16,000 on July 31.
ASSET = LIABILITIES + EQUITY
ACCOUNTS RECEIVABLE ₱ 16,000 SERVICE REVENUE ₱ 16,000
Revenue earned with a down payment, balance on account
July 27 – Another customer hired the services of Reyes. A bill was issued to them for
PHP20,000, 50% of which was collected.
ASSET = LIABILITIES + EQUITY
CASH ₱ 10,000 SERVICE REVENUE ₱ 20,000
ACCOUNTS RECEIVABLE ₱ 10,000

Customer’s account collected in cash

July 30 – The customer on July 24 paid 50% of his account in cash.
ASSET = LIABILITIES + EQUITY
CASH ₱ 8,000
ACCOUNTS RECEIVABLE ₱ (8,000)