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    Basic Accounting Equation

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    Arienaya
    This document discusses the basic accounting equation. [1] The basic accounting equation represents the relationship between assets, liabilities, and owner's equity of a business. [2] It states that assets always equal liabilities plus owner's equity. [3] The equation must remain balanced as business transactions occur by increasing or decreasing at least two accounts.

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    Basic Accounting Equation

    Uploaded by

    Arienaya
    196 views17 pages
    This document discusses the basic accounting equation. [1] The basic accounting equation represents the relationship between assets, liabilities, and owner's equity of a business. [2] It states that assets always equal liabilities plus owner's equity. [3] The equation must remain balanced as business transactions occur by increasing or decreasing at least two accounts.

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    This document discusses the basic accounting equation. [1] The basic accounting equation represents the relationship between assets, liabilities, and owner's equity of a business. [2] It states that assets always equal liabilities plus owner's equity. [3] The equation must remain balanced as business transactions occur by increasing or decreasing at least two accounts.

    Copyright:

    © All Rights Reserved
    Download as PPTX, PDF, TXT or read online from Scribd
    Download as pptx, pdf, or txt
    196 views17 pages

    Basic Accounting Equation

    Uploaded by

    Arienaya
    This document discusses the basic accounting equation. [1] The basic accounting equation represents the relationship between assets, liabilities, and owner's equity of a business. [2] It states that assets always equal liabilities plus owner's equity. [3] The equation must remain balanced as business transactions occur by increasing or decreasing at least two accounts.

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    © All Rights Reserved
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    Download as pptx, pdf, or txt
    of 17

    BASIC

    ACCOUNTING
    EQUATION
    DIRECTED BY :

    ARIENAYA SYIFA’A SAAJIDAH


    DENNIS HERLAMBANG
    HANY NUR FAUZIYAH
    ISMAH NUR HANIFAH
    SAVITRI NIRMALASARI DEWI
    DEFINITION OF BASIC
    ACCOUNTING EQUATION

     The basic accounting equation, also called the


    balance sheet equation, represents the
    relationship between the assets, liabilities,
    and owner's equity of a business. It is the
    foundation for the double-entry bookkeeping
    system. For each transaction, the total debits equal
    the total credits.
    THE FUNCTION OF BASIC
    ACCOUNTING EQUATION

    Basic accounting equation is useful to know


    the change of the Company Intellectual property
    ANY Transaction occurred. And knowing how
    much has been used and spent in one accounting
    period.
    How Business Activities Change
    the Accounting Equation
     Assets = Liabilities + Owner’s Equity
     Equation must always remain equal
     When reading transactions, Received Cash always
    means cash increases; Paid Cash always means
    cash decreases
     Transactions don’t always affect both sides of the
    equation
     When analyzing transactions, always
     Read the transaction
     Identify the accounts
     Classify the accounts (Asset, Liability or Owner’s
    Equity
    Assets
     Assets are valuable resources that are owned by a
    company.
     They represent probable future economic benefits and arise as
    the result of past transactions or events.
     Items of value owned by the business

    Assets = Liabilities + Owner Equity


    Liabilities
     Liabilities are present obligations of the company.
     They are probable future sacrifices of economic benefits which
    arise as the result of past transactions or events.
     Businesses of all sizes usually borrow money and purchase
    merchandise on credit. Thats transaction arise liabilities.

    Liabilities = Assets - Owner Equity


    Owner’s Equity
     Owners' equity represents the owner’s residual equity in the
    assets of the business.
     Residual equity is another name for owner’s equity.

    Owners’ Equity = Assets – Liabilities


    Assets = Owner’s Equity + Liabilities

    Cash Equity Account Payable


    Account Receivable
    Drawing Salaries Payable
    Supplies Bank Loan
    Prepaid Unearned Revenue
    Building
    Motor vehicle
    Equipment
    A = OE + L
    TRANSACTION THAT AFFECTS BOTH
    ASSET AND LIABILITY

    ASSET  LIABILITY 

    ASSET  LIABILITY 

    TRANSACTION THAT AFFECTS BOTH


    ASSET AND OWNER’S EQUITY

    ASSET  OWNER’S EQUITY 

    ASSET  OWNER’S EQUITY 


    A = OE + L

    TRANSACTION THAT AFFECTS

    ASSETS ONLY

    ASSET  ASSET 

    TRANSACTION THAT AFFECTS

    LIABILITIES ONLY
    LIABILITY  LIABILITY 
    Examples :
    a) John began business with cash in hand
    $5,000.
    Cash $5,000 Equity $5,000
    b) The firm took a bank loan of $8,000.

    Cash $8,000 Bank Loan $8,000


    c) Being purchase of motor vehicle from
    ABC Trading for $2,000.
    Motor Vehicle $2,000 Cash $2,000
    Examples :

    d) Being payment of $500 to Creditor, Peter.

    Cash  $500 Account Payable  $500

    e) Being receipt of $3,500 in from a debtor.

    Account Receivable  $3,500 Cash $3,500


    Examples :

    f) Being repayment of bank loan for $1,500.

    Cash  $1,500 Bank Loan  $1,500

    g) Being purchase of office equipment from


    Trading on credit for $780.

    Office Equipment $780 A/P$780


    Examples :

    h) Paid employees’ salaries $2,200

    Cash  $2,200 Equity  $2,200

    i) Recieved a cash payment of $1,250 for service


    provided

    Cash  $1,250 Equity  $1,250


    CASH A/R Vehicl Office Account Bank Equity
    e Equiment Payable Loan
    5,000 5,000

    8,000 8,000

    13,000 8,000 5,000

    (2,000) 2,000

    11,000 2,000 8,000 5,000

    (500) (500)

    10,500 2,000 (500) 8,000 5,000

    3,500 (3,500)

    14,000 (3,500) 2,000 (500) 8,000 5,000

    (1,500) (1,500)

    12,500 (3,500) 2,000 (500) 6,500 5,000

    780 780
    Vehicl Office Account Bank
    CASH A/R Equity
    e Equiment Payable Loan
    12,500 (3,500) 2,000 780 280 6,500 5,000

    (2,200) (2,200)

    10,300 (3,500) 2,000 780 280 6,500 2,800

    1,250 1,250

    11,550 (3,500) 2,000 780 280 6,500 4,050

    10,830 10,830
    BALANCE
    THANK YOU FOR
    YOUR ATTENTION.

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