By : John Albert Alcantara

The Accounting Equation – Is the basic tool of

accounting where the left side of the equation shows
the resources owned by the business and the right
side of the equation shows the resources that are
applied to the business by the outside creditors and
the owners.

The Accounting Equation is:

Assets = Liabilities + Owner’s Equity
Illustration 1: Effects of Business Transaction in the
Accounting Equation

Business Transactions:
1. The owner invested cash to an internet business for
P2oo,ooo.
2. The business purchased internet equipment in cash
for P50,000.
3. The business purchased computer printers on
account for P10,000.
4. The business purchased supplies in cash for P2,000.
5. The business collected cash from the internet gamers
and users for P50,000.
6. The business paid salaries to employees for P10,000.
7. The business paid communication expenses for
P20,000.
8. The business paid electricity bills worth P2,000.
9. The owner’s withdraws cash for P5,000.
10. The business partially paid the payable incurred in
the purchase of computer printers for P5,000.
11. The owner invested additional cash to the business
for P100,000.
12. At the end of the month, physical count of supplies
shows consumption of supplies amount to P1,500.
Illustration 2:

Business Transactions:
1. Ms. Go invest cash amounting to P800,000.
2. Ms. Go invest equipment amounting to P50,000.
3. Renders P25,000 services for cash.
4. Renders P9,000 services on credit.
5. Collects account in transaction #4.
6. Purchases P1,000 supplies on credit.
7. Returns P120 defective supplies.
8. Pays the supplies bought on account.
9. Borrows P90,000 cash issuing a note.
10. Purchases land worth P500,000 for cash.
11. Pays utilities expense for the month P800
12. Pays the note in full.
Seatwork A:
Give the effect of the following transactions on the accounting
equation:
On May 11, 2016, Donya Pura opens Pura Collection Services. On
the transaction summary table, indicate the effect of each
transaction on each account.
1. Donya Pura invested P60,000 in the business.
2. Bought P1,500 worth of supplies for cash.
3. Borrowed P50,000 from Donya Tekla.
4. Cash services rendered to Ms. Ko, P25,000.
5. Issued a note for the amount borrowed from Donya Tekla.
6. Services rendered to client on account, P5,000.
7. Settled the note with Donya Tekla.
8. Paid P12,000 worth of personal funds for Palawan vacation.
9. Made personal withdrawal , P10,000.
10. Hired office secretary with monthly salary of P13,000.
11. Collections from various clients amounting to P30,000 for
services rendered.
12. Returned P200 worth of defective supplies bought using
cash.
13. Invested additional cash, P24,000.
14. Full collection of account from all clients, P100,000.
Seatwork B:
Selected transactions are presented below. Give the effect of the
following transactions on the three elements of the balance
sheet. Give the accounts affected and the amount of increase
and decrease.
1. Owner invested P550,000 cash.
2. Paid one month rent P20,000.
3. Paid insurance for one year P36,000.
4. Bought supplies on credit P4,300.
5. Owner invested equipment valued at P90,000.
6. Purchased furniture, P69,000; paying 1/3 of the amount and
the remaining balance on account.
7. Rendered services to account customers, P10,000.
8. Paid the balance on the furniture.
9. Owner withdrew P2,000 worth of supplies for personal use.
10. Rendered services for cash, P68,000
11. Billed Ms. Penga P9,000 for services rendered.
12. Owner withdrew P2,000 worth of supplies for personal use.
13. Collected P9,000 from Ms. Penga.
14. Rendered services on credit to Ms. Quiripot, P8,800.
15. Paid secretary’s salary, P7,700.
16. Received bill from Globe for internet services, P999.
17. Ms. Quiripot issued a note in liue of her account.
18. Paid Globe bill.
19. Owner made an additional investment of P100,000.
20. Ms. Quiripot paid the note.