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Accounting Equation Demonstration - Basic Accounting Equation
Financial Accounting (AE 111)
University of San Agustin
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Before getting into CASE I and CASE II, use the following transactions to practice posting into equation template: Indicate “xx” under the appropriate column since there is no amount. If the impact of the transaction to the element is DECREASED, enclose xx in a parenthesis (xx).
- Owner invests cash in the business.
- Pays insurance in advance for six months.
- Pays secretary's salary.
- Purchases office supplies on account.
- Pays electricity bill.
- Borrows money from local bank.
- Makes payment on account.
- Receives cash due from customers.
- Provides services on account.
- Owner withdraws assets from the business.
Basic Equation A-L=C Assets Liabilities Capital XX XX (XX) (XX) XX XX XX XX (XX) XX XX (XX)
Expanded Equation A-L=C-W+I-E Assets Liabilities Capital Withdrawal Income Expenses XX XX (XX) (XX)
Let’s begin the drill.
Using the basic accounting equation Assets – Liabilities = Capital, post the amounts of each of the transaction below. After the final transaction has been posted, get the balance of each column but footing the amounts or by getting the net amounts.
CASE I Transactions for Ed Petry Company for the month of October are presented below.
- Invested an additional P2,000,000 cash in the business.
- Purchased land costing P1,400,000 for cash.
- Purchased equipment costing P600,000 for P150,000 cash and the remainder on credit.
- Purchased supplies on account for P40,000.
- Paid P50,000 for a one-year insurance policy.
- Received P150,000 cash for services performed.
- Received P200,000 for services previously performed on account.
- Paid wages to employees for P125,000.
- Petry withdrew P50,000 cash from the business.
CASE II Identify each transaction by number when posting the amounts in the expanded accounting equation Assets – Liabilities = Capital -Withdrawal + Revenue - Expenses
- The owner, Mike Derby, invests P1,750,000 in cash in starting a real estate office operating as a sole proprietorship.
- Purchased P20,000 of office supplies on credit.
- Purchased office equipment for P400,000, paying P100,000 in cash and signed a 30-day, P300,000, note payable.
- Real estate commissions billed to clients amount to P200,000.
- Paid P35,000 in cash for the current month's rent.
- Paid P10,000 cash on account for office supplies purchased in transaction 2.
- Received a bill for P30,000 for advertising for the current month.
- Paid P110,000 cash for office salaries.
- Derby withdrew P60,000 from the business for living expenses.
- Received a check for P150,000 from a client in payment on account for commissions billed in transaction 4.
Accounting Equation Demonstration - Basic Accounting Equation
Course: Financial Accounting (AE 111)
University: University of San Agustin
