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Financial Accounting Reporting (Fundamentals) : Chapter 3: The Accounting Equation (FAR By: Millan)

This document discusses accounting concepts from a financial accounting textbook. It defines the accounting equation as Assets = Liabilities + Equity, and expands it to Assets = Liabilities + Equity + Income - Expenses. The five major accounts are introduced as Assets, Liabilities, Equity, Income, and Expenses. Examples are provided for common account titles that would appear on a chart of accounts, such as Cash, Accounts Receivable, Accounts Payable, Sales, and Depreciation Expense.

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Aldeguer Joy Penetrante
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267 views19 pages

Financial Accounting Reporting (Fundamentals) : Chapter 3: The Accounting Equation (FAR By: Millan)

This document discusses accounting concepts from a financial accounting textbook. It defines the accounting equation as Assets = Liabilities + Equity, and expands it to Assets = Liabilities + Equity + Income - Expenses. The five major accounts are introduced as Assets, Liabilities, Equity, Income, and Expenses. Examples are provided for common account titles that would appear on a chart of accounts, such as Cash, Accounts Receivable, Accounts Payable, Sales, and Depreciation Expense.

Uploaded by

Aldeguer Joy Penetrante
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 PPTX, 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 Equation
Learning Objectives
1. Illustrate the accounting equation.
2. Perform operations involving simple cases
with the use of accounting equation.
The Accounting Equation

Assets= Liabilities + Equity


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.
The Expanded Accounting Equation

Assets = Liabilities + Equity + Income - Expenses


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.
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 4
Types of Major Accounts

Learning Competencies
1. Discuss the five major accounts.
2. Cite examples of each type of account.
3. Prepare a Chart of Accounts.
The Account

• An account is the basic storage of


information in accounting. It is a record of
the increases and decreases in a specific
item of asset, liability, equity, income or
expense.
The T-Account
The Five Major Accounts
1. ASSETS – are the resources you control that have resulted from
past events and can provide you with economic benefits.
2. LIABILITIES – are your present obligations that have resulted
from past events and can require you to give up economic
resources when settling them.
3. EQUITY – is assets minus liabilities.
4. INCOME – are increases in economic benefits during the period
in the form of inflows or enhancements of assets or decreases
of liabilities that result in increases in equity, other than those
relating to investments by the business owners.  
5. EXPENSES – are decreases in economic benefits during the
period in the form of outflows or depletions of assets or
increases of liabilities that result in decreases in equity, other
than those relating to distributions to the business owners.
Chapter 4: Types of Major Accounts (FAR by: Millan)
Classification of the Five Major Accounts
Chart of Accounts
A chart of accounts is a list of all the accounts
used by a business.
Common Account Titles
• BALANCE SHEET ACCOUNTS
ASSETS
a. Cash
b. Accounts receivable
c. Allowance for bad debts
d. Notes receivable
e. Prepaid supplies
f. Prepaid rent
g. Prepaid insurance
h. Land
i. Building
j. Accumulated depreciation - Building
k. Equipment
l. Accumulated depreciation - equipment
Common Account Titles - Continuation
• BALANCE SHEET ACCOUNTS
LIABILITIES 
a. Accounts payable
b. Notes payable
c. Interest payable
d. Salaries payable
e. Utilities payable
f. Unearned
Common Account Titles - Continuation
• BALANCE SHEET ACCOUNTS
EQUITY
a. Owner’s capital (or Owner’s equity)
b. Owner’s drawings
Common Account Titles - Continuation
• INCOME STATEMENT ACCOUNTS
INCOME
a. Service fees
b. Sales
c. Interest income
d. Gains
Common Account Titles - Continuation
• INCOME STATEMENT ACCOUNTS
EXPENSES
a. Cost of sales (or Cost of goods sold)
b. Freight-out
c. Salaries expense
d. Rent expense
e. Utilities expense
f. Supplies expense
g. Bad debt expense
h. Depreciation expense
i. Advertising expense
j. Insurance expense
k. Taxes and licenses
l. Transportation and travel expense
m. Interest expense
n. Miscellaneous expense
o. Losses
END

Chapter 4: Types of Major Accounts (FAR


by: Millan)

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