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Accounting Equation

The document describes the accounting equation of assets equaling liabilities plus owner's equity. It provides details on current and non-current assets and liabilities, as well as tangible and intangible assets. Examples of each item in the accounting equation are also given.

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13 views

Accounting Equation

The document describes the accounting equation of assets equaling liabilities plus owner's equity. It provides details on current and non-current assets and liabilities, as well as tangible and intangible assets. Examples of each item in the accounting equation are also given.

Uploaded by

A c
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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Accounting Equation

𝐴𝑠𝑠𝑒𝑡=𝐿𝑖𝑎𝑏𝑖𝑙𝑖𝑡𝑖𝑒𝑠+𝑂𝑤𝑛𝑒𝑟′𝑠𝐸𝑞𝑢𝑖𝑡𝑦
 
Assets
• Resources owned and controlled by the
firm.
• Current Asset and Non-Current Assets
• Tangible and Intangible Assets
Current Asset Non-Current Assets
Are assets that can be Are assets that cannot
realized (collected, sold, be realized (collected,
used up) one year after sold, used up) one year
year-end date after year-end date.

Examples: Examples: Property,


Cash, Accounts Plant and Equipment
Receivable, (equipment, furniture,
Merchandise Inventory, building, land), long term
Prepaid Expense, etc. investments, etc
Current Asset
• Cash is money on hand, or in banks, and
other items considered as medium of
exchange in business transactions.
• Accounts Receivable are amounts due
from customers arising from credit sales or
credit services.
• Notes Receivable are amounts due from
clients supported by promissory notes.
• Inventories are assets held for resale
Current Asset
• Supplies are items purchased by an enterprise which
are unused as of the reporting date.
• Prepaid Expenses are expenses paid in advance.
They are assets at the time of payment and become
expenses through the passage of
• time.
• Accrued Income is revenue earned but not yet
collected
• Short term investments are the investments made by
the company that are intended to be sold immediately
Non-Current Assets
• Property, Plant and Equipment are long-
lived assets which have been acquired for
use in operations.
• Long term Investments are the
investments made by the company for
long-term purposes
• Intangible Assets are assets without a
physical substance. Examples include
franchise and copyright.
Tangible and Intangible Asset
• Tangible Assets are physical assets such
as cash, supplies, and furniture and
fixtures.

• Intangible Assets are non-physical assets


such as patents and trademarks
Liabilities
• are the debts and obligations of the
company to another entity.
• Current and Non-current Liabilities
Current Liabilities Non-Current Liabilities
Liabilities that fall due liabilities that do not fall
(paid, recognized as due (paid, recognized as
revenue) within one year revenue) within one year
after year-end date after year-end date..

Examples include Examples include


Accounts Payable, Notes Payable,
Utilities Payable and Loans Payable,
Unearned Income. Mortgage Payable, etc
Current Liabilities
• Accounts Payable are amounts due, or
payable to, suppliers for goods purchased
on account or for services received on
account.
• Notes Payable are amounts due to third
parties supported by promissory notes.
Current Liabilities
• Accrued Expenses are expenses that are
incurred but not yet paid (examples:
salaries payable, taxes payable)l
• Unearned Income is cash collected in
advance; the liability is the services to be
performed or goods to be delivered in the
future.
Non-Current Liabilities
• Loans Payable
• Mortgage Payable
Owner’s Equity
The residual interest of the owner from the
business. It can be derived by deducting
liabilities from assets.
Owner’s Equity
• Capital is the value of cash and other
assets invested in the business by the
owner of the business.
• Drawing is an account debited for assets
withdrawn by the owner for personal use
from the business.
Income
The Increase in resources resulting from
performance of service or selling of goods.
• Examples:
Service revenue for service entities
Sales for merchandising and manufacturing
companies
Expenses
• The decrease in resources resulting from
the operations of business

Examples:
Salaries Expense, Interest Expense, Utilities
Expense
Assets invested by the owner
July 1 - Paolo Reyes started a delivery
service on July 1, 2013. The following
transactions occurred during the month of
July. He invested PHP800,000 cash and
Cars amounting to PHP200,000
Borrowings from the bank
July 2 – Reyes borrowed PHP100,000 cash
from PNB for use in his business.
Asset purchased for cash
July 7 – Bought tables and chairs from
Orocan and paid PHP45,000 cash
Assets purchased on account
July 15- Various equipment were purchased
on account from Fortune for PHP 55, 000
Cash withdrawal by the owner
July 18- Reyes made a cash withdrawal of
PHP5, 000 for personal use
Payment of liability
July 20- The account due to Fortune was
paid in cash.
Received cash for
revenue earned
July 21- A customer hired the services of
Reyes. Cash of PHP 15, was received from
the customers.
Paid cash for expenses incurred
July 22- Cash was paid for the following: gas
and oil, PHP 500 and car repairs, PHP
1,000.
Revenue rendered on account
July 24- Another customer hired the services
of Reyes and promised to pay PHP 16,000
on July 31.
Paid for expenses incurred
July 25- Paid PHP500 for telephone bill.
Revenue earned with a down
payment, balance on account.
July 27- Another customer hired the services
of Reyes. A bill was issued to them for
PHP20, 000, 50% of which was collected.
Customer’s account collected
in cash
July 30- The customer on July 24 paid 50%
of his account in cash.
Paid cash for expenses incurred
July 31- Paid PHP 10, 000 for rental of office
space, and salaries of PHP9,000.

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