The Accounting Equation

The
The Accounting
Accounting Equation
Equation
Assets = Liabilities + Owners Equity
The
The resources
resources
owned
owned by
by aa
business
business

The
The Accounting
Accounting Equation
Equation
Assets = Liabilities + Owners Equity
The
The rights
rights of
of the
the
creditors,
creditors, which
which
represent
represent debts
debts of
of
the
the business
business

The
The Accounting
Accounting Equation
Equation
Assets = Liabilities + Owners Equity
The
The rights
rights of
of the
the
owners
owners

What is a business
transaction?

A business transaction is an economic event or

condition that directly changes an entitys financial
condition or directly affects its results of operations.

On November 1,
2012, Chris
Clark begins a
business that will
be known as
NetSolutions.

a. Chris
Chris Clark
Clark deposits
deposits P25,000
P25,000 in
in aa bank
bank
a.
account in
in the
the name
name of
of NetSolutions.
NetSolutions.
account

a.

Assets

Cash
25,000

Owners Equity
Chris Clark, Capital
25,000 Investment
by Chris
Clark

What document is being issued when

a company receives cash?

b. NetSolutions
NetSolutions exchanged
exchanged P20,000
P20,000 for
for land.
land.
b.
Assets
Cash + Land
Bal. 25,000
b. 20,000
+20,000
Bal. 5,000
20,000

=
=

Owners Equity
Chris Clark, Capital
25,000
25,000

What document is being issued when a

company purchase/acquire/pays
something?

c. During
During the
the month,
month, NetSolutions
NetSolutions purchased
purchased
c.
supplies for
for P1,350
P1,350 and
and agreed
agreed to
to pay
pay the
the
supplies
supplier in
in the
the near
near future
future (on
(on account).
account).
supplier
Assets

Cash + Supplies + Land

Bal. 5,000
c.
Bal. 5,000

20,000
+ 1,350
1,350

20,000

Owners
Liabilities + Equity
Accounts
Chris Clark,
Payable
Capital

25,000
+ 1,350
1,350

25,000

What document is being issued when a

company purchase/acquire on account?

d. NetSolutions
NetSolutions provided
provided services
services to
to
d.
customers, earning
earning fees
fees of
of P7,500
P7,500 and
and
customers,
received the
the amount
amount in
in cash.
cash.
received
Assets
Cash + Supplies + Land
Bal. 5,000
1,350
20,000
d. + 7,500
Bal. 12,500
1,350
20,000

Owners
Liabilities + Equity
Accounts
Chris Clark,
Payable
Capital
1,350
25,000
1,350

25,000

What document is being issued when a

company renders service/delivers goods to
their customers?

e. NetSolutions
NetSolutions paid
paid the
the following
following
e.
expenses: wages,
wages, P2,125;
P2,125; rent,
rent, P800;
P800;
expenses:
utilities, P450;
P450; and
and miscellaneous,
miscellaneous, P275.
P275.
utilities,
Assets

Cash + Supplies + Land

Bal. 12,500
1,350
20,000
e. 3,650

Bal. 8,850
25,000

1,350

Owners
Liabilities + Equity
Accounts
Chris Clark,
Payable
Capital
1,350
25,000

20,000

1,350

NetSolutions paid
paid P950
P950 to
to
f.f. NetSolutions
creditors during
during the
the month.
month.
creditors
Assets
Cash + Supplies + Land
Bal. 8,850
1,350
20,000
f.
950
Bal. 7,900
1,350
20,000

Owners
Liabilities + Equity
Accounts
Chris Clark,
Payable
Capital
1,350
25,000
950
400
25,000

g. At
At the
the end
end of
of the
the month,
month, the
the cost
cost
g.
of supplies
supplies on
on hand
hand isis P550,
P550, so
so
of
P800 of
of supplies
supplies were
were used.
used.
P800
Assets
Cash + Supplies + Land
Bal. 7,900
1,350
20,000
g.
800
Bal. 7,900
550
20,000

Owners
Liabilities + Equity
Accounts
Chris Clark,
Payable
Capital
400
25,000
400

25,000

h. At
At the
the end
end of
of the
the month,
month, Chris
Chris
h.
withdrew P2,000
P2,000 in
in cash
cash from
from the
the
withdrew
business for
for personal
personal use.
use.
business
Assets
Cash + Supplies + Land
Bal. 7,900
550
20,000
h. 2,000
Bal. 5,900
550
20,000

Owners
Liabilities + Equity
Accounts
Chris Clark,
Payable
Capital
400
25,000
2,000 Withdrawal
400
23,000

Effects
Effects of
of Transactions
Transactions on
on Owners
Owners Equity
Equity
Owners Equity
Decreased by

Increased by

Owners
withdrawals

Owners
investments

Expenses

Revenues
Net
income

Accounting
Accounting reports,
reports, called
called
financial
financial statements,
statements,
provide
provide summarized
summarized
information
information to
to the
the owner.
owner.

FINANCIAL
FINANCIALSTATEMENTS
STATEMENTS
Statement of IncomeA summary of the revenue and
expenses for a specific period of time.
Statement of owners equityA summary of the changes
in the owners equity that have occurred during a
specific period of time.
Statement of Financial PositionA list of the assets,
liabilities, and owners equity as of a specific date.
Statement of cash flowsA summary of the cash receipts
and disbursements for a specific period of time.
Notes to the Financial Statements

NetSolutions
Statement of Income
For the Month Ended November 30, 2012
Fees earned

P7 500 00

Operating expenses:
Wages expense
Rent expense
Supplies expense
Utilities expense
Miscellaneous expense
Total operating expenses
Net Profit

P2 125 00
800 00
800 00
450 00

To
Tothe
the statement
statement
of
of owners
ownersequity
equity

275 00
4 450 00
P3 050 00

NetSolutions
Statement of Owners Equity
For the Month Ended November 30, 2012
Chris Clark, capital, November 1, 2012

From
Investment on November
From1the
the
Net income for November
statement
statement of
of
income
income

P25 000 00
3 050 00
P28 050 00
2 000 00

Less withdrawals
Increase in owners equity
To
Tothe
the
Chris Clark, capital, November Statement
30, 2012 of

Statement of
Financial
Financial
Position
Position

26 050 00
P26 050 00

NetSolutions
Statement of Financial Position
November 30, 2012
Assets
Cash
Supplies
Land
Total assets

From
Fromthe
the
statement
statement of
of
owners equity
Liabilities owners equity

P 5 900 00 Accounts Payable P 400 00

550 00 Owners Equity
20 000 00 Chris Clark, cap.
26 050 00
Total liabilities and
P26 450 00 owners equity
P26 450 00

This balance sheet presented

using the account form

When
When the
the balance
balance sheet
sheet displays
displays
the
the liabilities
liabilities and
and owners
owners equity
equity
below
below the
the assets,
assets, the
the report
report form
form isis
being
being used.
used.

NetSolutions
Statement of Cash Flows
For the Month Ended November 30, 2012
Cash flows from operating activities:
Cash received from customers
P 7 500 00
Deduct cash payments for expenses
and payments to creditors
4 600 00
Net cash flow from operating activities
Cash flows from investing activities:
Cash payment for acquisition of land
Cash flows from financing activities:
Cash received as owners investment
P25 000 00
Deduct cash withdrawal by owner
2 000 00
Net cash flow from financing activities
Net cashShould
flow and
Nov.
30, 2005
cash
bal. sheet
match
Cash
on
the
balance
Should match Cash on the balance sheet

2 900 00
(20 000 00 )

23 000 00
P5 900 00

Statement
Statement of
of Cash
Cash Flows
Flows
Cash Flows from Operating ActivitiesThis section
reports a summary of cash receipts and cash payments
from operations.
Cash Flows from Investing ActivitiesThis section
reports the cash transactions for the acquisition and sale
of relatively permanent assets.
Cash Flows from Financing ActivitiesThis section
reports the cash transactions related to cash
investments by the owner, borrowings, and cash
withdrawals by the owner.

The
The End
End