ACCOUNTING EQUATION

AND DOUBLE ENTRY

SYSTEM
ACCOUNTING EQUATION

 Itis considered as the most basic tool

of accounting.
Assets= Liabilities + Owner’s Equity

*The increase and decrease in assets are recorded in

the opposite manner (mirror image) as liabilities and
owner's equity are recorded.
 Owner’s
assets liability
equity
EXAMPLE:

 Mr. Medina has liabilities of

P147,000 and owner’s equity of
P236,500. How much is his assets?
SOLUTION
 Given: L= P147,000
O.E= P236,500
A=?
Formula: Assets=Liabilities+Owner’s Equity
A= 147,000+236,500
A= 383,500
Substitute now the value of asset to verify if the
equation is balance:
A=L+OE
383,500=147,000+236,500
383,500=383,500
DOUBLE- ENTRY SYSTEM

 Accounting is based on a double-entry system

which means that the dual effects of a
business transaction is recorded.
 Each transaction affects at least two accounts.

 For every debit side entry must have a

corresponding credit side entry and therefore
must be equal to each other.
 An account is debited when an amount is
entered on the left side of the account and
credited when an amount is entered on the
right side.
Debit (Dr.) Credit (Cr.)

xx xx
 The account type determines how increases
or decreases in it are recorded.

ASSETS LIABILITIES AND OWNER’S

EQUITY

Debit Credit Debit Credit

(+) (-) (-) (+)
Increases Decreases Decreases Increases

Normal Normal
Balance Balance
INCOME STATEMENT ACCOUNTS

Debit for decreases in owner’s Credit for increases in owner’s equity

equity Income
Expenses

Debit Credit Debit Credit

(+) (-) (-) (+)
Increases Decreases Decreases Increases

Normal Normal
Balance Balance
NORMAL BALANCE OF AN ACCOUNT

 It refers to the side of the account (debit or

credit) where increases are recorded.

Debit balance - Asset, owner's withdrawal and

Expenses accounts
Credit balance – Liability, owner's equity and
Income accounts
NOTES:
 Guys, aralin niyo ng mabuti ito kasi may recitation
tayo next meeting 
 Make sure na lahat ay may dalang hard copy. Ang
walang copy ay ABSENT. Pa-inform na rin ang iba
niyong kaklase na meron nakong inupload na
hand out once na nakita niyo to para makapag
produce sila at makapag advance reading na rin 

Study First. Godbless! 

-Leslie 