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Chapter 3 - The Accounting Equation

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13 views8 pages

Chapter 3 - The Accounting Equation

Uploaded by

angelalylucio01
Copyright
© © All Rights Reserved
We take content rights seriously. If you suspect this is your content, claim it here.
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Download as PDF, TXT or read online on Scribd
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FINANCIAL ACCOUNTING

&
REPORTING
(Fundamentals)

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


Chapter 3
The Accounting
Learning Objectives
Equation
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)

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