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Chapter 3 - The Accounting Equation

This document discusses the accounting equation and its components. The accounting equation states that assets equal liabilities plus equity. Assets are economic resources controlled by a business, liabilities are obligations owed, and equity is assets minus liabilities. The expanded equation adds income and expenses, where income increases equity and expenses decrease equity. The document provides examples of how to apply the accounting equation to calculate missing values.

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870 views10 pages

Chapter 3 - The Accounting Equation

This document discusses the accounting equation and its components. The accounting equation states that assets equal liabilities plus equity. Assets are economic resources controlled by a business, liabilities are obligations owed, and equity is assets minus liabilities. The expanded equation adds income and expenses, where income increases equity and expenses decrease equity. The document provides examples of how to apply the accounting equation to calculate missing values.

Uploaded by

geyb away
Copyright
© © All Rights Reserved
We take content rights seriously. If you suspect this is your content, claim it here.
Available Formats
Download as PDF, TXT or read online on Scribd
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FINANCIAL ACCOUNTING

&
REPORTING
(Fundamentals)

ZEUS VERNON B. MILLAN


Chapter 3: The Accounting Equation (FAR
by: Millan)
Chapter 3
The Accounting Equation
Learning Objectives
1. Illustrate the accounting equation.
2. Perform operations involving simple cases
with the use of accounting equation.

Chapter 3: The Accounting Equation (FAR


by: Millan)
The Accounting Equation

Assets = Liabilities + Equity

Chapter 3: The Accounting Equation (FAR by: Millan)


Definitions
• ASSETS – are the economic resources you
control that have resulted from past events
and can provide you with economic benefits.
• LIABILITIES – are your present obligations
that have resulted from past events and can
require you to give up economic resources
when settling them.
• EQUITY – is assets minus liabilities.
Chapter 3: The Accounting Equation (FAR by: Millan)
The Expanded Accounting Equation

Assets = Liabilities + Equity + Income - Expenses

Chapter 3: The Accounting Equation (FAR by: Millan)


Definitions
• INCOME – is increases in economic benefits during the
period in the form of increases in assets, or decreases in
liabilities, that result in increases in equity, excluding
those relating to investments by the business owner.

• EXPENSES – are decreases in economic benefits during


the period in the form of decreases in assets, or
increases in liabilities, that result in decreases in equity,
excluding those relating to distributions to the business
owner.

• The difference between income and expenses represents


profit or loss.
Chapter 3: The Accounting Equation (FAR by: Millan)
Applications of the accounting
equation
1. If total assets is ₱10,000 and total liabilities is
₱6,000, how much is the total equity?
2. If total liabilities is ₱5,000 and total equity is
₱4,000, how much is the total assets?
3. If total assets is ₱10,000 and total equity is
₱3,000, how much is the total liabilities?
4. If total income is ₱10,000 and total expenses
are ₱3,000, how much is the profit or loss?
5. If total income is ₱10,000, total expenses are
₱8,000, total liabilities is ₱7,000, and total
equity (before profit or loss) is ₱6,000, how
much is the total assets?
Chapter 3: The Accounting Equation (FAR by: Millan)
APPLICATION OF
CONCEPTS

PROBLEM 3: FOR CLASSROOM DISCUSSION

Chapter 3: The Accounting Equation (FAR by: Millan)


 QUESTIONS????
 REACTIONS!!!!!

Chapter 3: The Accounting Equation (FAR


by: Millan)
END

Chapter 3: The Accounting Equation (FAR


by: Millan)

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