FUNDAMENTAL OF ACCOUNTANCY, BUSINESS & MANAGEMENT 1
Concept Notes:
Elements of Accounting Equation :
ASSETS = LIABILITIES + OWNER’S EQUITY
Assets = Liabilities + Paid-in Capital + Retained Earnings
Debit Credit Debit Credit Debit Credit Debit Credit
Expenses Revenues
and Losses and gains
Debit Credit Debit Credit
The Accounting Equation is Assets = Liabilities + Equity
For every transaction, the accounting equation should always be balanced
Assets are resources owned by the business. (It will generate Profit/Income in the future
Example: Cash, Accounts Receivable, Furniture and Equipment
It is a Debit Account, that when there is an increase in asset it shall be added to the debit side
Liabilities are financial obligations/debts of the business.
Example: Accounts Payable, Loans Payable
It is a Credit Account, that when there is an increase in Liabilities it shall be added in the credit
Equity ( Capital) – is the residual interest of the owner of the business. Any asset left after paying
liabilities is the right of the owner of the business. (Capital, Revenue, Expenses,Withdrawals)
Four Elements that Affect Equity:
1. Investment – additional capital provided by the owner
2. Withdrawal (Drawings) – withdrawal made by the owner
3. Revenue – income earned or generated by the business
4. Expenses – cost of operations incurred by the business to generate revenue
Capital is a Credit Account, that if there is an additional investment in the business, it shall be added in
the credit side.
Expenses is a Debit Account, that if there is an additional expense, it shall be added to the debit side.
Revenue/Profit/Income is a Credit Account, that if there is an additional income, it shall be added to
the credit side.
Sample Mathematical Equation that relates to Accounting Equation:
A=B+C
1. A = ? 2. A = 3000 3. A = 700,000
B = 50 B=? B = 250,000
C = 100 C = 2,000 C=?
Answer:
1. A = B + C 2. B = A – C 3. C = A - B
50 + 100 B = 3,000 – 2,000 C = 700,000 – 250,000
A = 150 B = 1,000 C = 450,000
