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Chapter 3 The Accounting Equation

The document discusses the accounting equation which balances assets, liabilities, and equity. Assets equal liabilities plus equity. The expanded equation adds income and expenses. The document provides examples of applying the accounting equation to calculate various financial values.

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8 views7 pages

Chapter 3 The Accounting Equation

The document discusses the accounting equation which balances assets, liabilities, and equity. Assets equal liabilities plus equity. The expanded equation adds income and expenses. The document provides examples of applying the accounting equation to calculate various financial values.

Uploaded by

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


y: 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)
END

Chapter 3: The Accounting Equation (FAR b


y: Millan)

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