Fundamentals of Accountancy, Business & Management - Accounting Equation Transaction Sample

2. ACCOUNTING
EQUATION
Chapter 2

3. Importance of the Accounting Equation
Business transactions affect the assets, liabilities,
and proprietorship of the business. These
effects can be expressed in the accounting
equation:
Assets are Equity of business

4. Equity is the right, claim, or interest of
a person over the assets of the
business. Liability represents such
claim in the assets of the business and
proprietorship is the owner’s of
owners’ interest in the business.

5. EQUITIES
And since there are two sources of equities, one
from the creditors (liabilities) and the other from
the owner (proprietorship), then we can express
the accounting equation as:

6. When to
in transaction

7. October 1 – Mr. Gil opened a motor
repair shop and invested
P 100,000 cash.
Increase in assets = Increase in Proprietorship
A = L + P
Cash P 100,000 = O + Gil, capital P 100,000
The assets, cash, is increased by P 100,000
The proprietorship account is also increased by P 100,000.
Analysis

8. October 3 – He purchased repair
supplies worth P 25,000 on credit
from De Mesa Trading.
Increase in assets = Increase in Liabilities
A = L + P
Repair supplies P 25,000 = Due to Mesa Trading
P 25,000 + 0
The assets, repair supplies, is increased by P 25,000
The account Due to Mesa Trading is increased by P 25,000.
Analysis

9. October 5 – Billed M. Manzano for
repair work done on his
automobile, P 12,000.
Increase in assets = Increase in Proprietorship
A = L + P
Due from Manzano P 12,000 = O + Gil, capital P 12,000
The assets, due from M. Manzano, is increased by P12,000
The proprietorship account is also increased by P 12,000 due to the
Analysis

10. October 7 – He bought a table and
chairs for the business, P 6,000 cash.
Increase in one form of assets = Decrease in another form of assets
A = L + P
= O + O

11. October 12 – Issued a promissory note
to De Mesa Trading to apply on his
account (Transaction 2)
Decrease in one form of liability = Increase in another form of liability

12. October 15 – Paid the salary of the
assistant, P 1,900
Decrease in assets = Decrease in Liabilities

13. October 29 – Mr. Gil withdrew P
15,000 from the business for his
personal use.
Decrease in assets = Decrease in Proprietorship