UNIVERSITY OF SAINT LOUIS Tuguegarao City SCHOOL OF ACCOUNTANCY, BUSINESS and HOSPITALITY First Semester Academic Year 2022-2023 COURSE LEARNING MODULE ACCT 1026- Financial Accounting and Reporting Lesson 1: The Accounting Equation REMINDERS: USL expects you to do the following: Lessons will be uploaded every Monday, and submission will be every Friday of the week. Comply with all requirements (written outputs, projects/performance tasks examinations and the like.) Turn in learning tasks on time to avoid backlogs. For any query that you want to make about your lessons or procedures in school, contact me through our messenger group chat, LMS chat boxes or feel free to contact us during our consultation hours Remember: Expect to do a lot of reading, problem-solving activities and other self-directed activities. Varied assessments or activities will be given. At the outset, I am strictly warning you against copying your classmates’ output without exerting any effort. We will be asking you to make a Journal of Learning (similar to your notebook during face to face classes) to record and assess the extent of learning during the term. For this week, the following shall be your guide for the different lessons and tasks that you need to accomplish. Be patient, read them carefully before proceeding to the tasks expected of you. HAVE A FRUITFUL LEARNING EXPERIENCE 😊 Topic: Learning Outcomes: I. The accounting equation a. The basic accounting equation b. The expanded accounting equation a. Applications of the accounting equation 1. Elaborate the accounting equation 2. Perform operations involving simple cases with the use of accounting equation LEARNING CONTENT Good Morning and Welcome to our class. Our course for this semester is Financial Accounting and Reporting, the foundation of all accounting related courses. Before we start. Let us first concentrate on basic accounting equation. ACCT 1026 – Financial Accounting and Reporting | 1 This document is a property of University of Saint Louis Tuguegarao. It must not be reproduced nor transmitted in any form, in whole or in part, without expressed written permission. What is the Accounting Equation? An accounting transaction is a business activity or event that causes a measurable change in the accounting equation. The accounting equation is a basic principle of accounting and a fundamental element of the balance sheet. The equation is as follows: Assets = Liabilities + Equity This equation sets the foundation of double-entry accounting and highlights the structure of the balance sheet. Double-entry accounting is a system where every transaction affects both sides of the accounting equation. For every change to an asset account, there must be an equal change to a related liability or equity account. It is important to keep the accounting equation in mind when performing journal entries. NOTE: If an entity keeps accurate records, the accounting equation will always be "in balance," meaning the left side should always equal the right side. The balance is maintained because every business transaction affects at least two of an entity's accounts. For example, when an entity borrows money from a bank, the entity's assets will increase and its liabilities will increase by the same amount. When an entity purchases inventory for cash, one asset will increase and one asset will decrease. Because there are two or more accounts affected by every transaction, the accounting system is referred to as double-entry accounting. The balance sheet is broken down into three major sections and their various underlying items: Assets, Liabilities and Equity. ASSETS- are future economic benefits controlled by an organization/entity as a result of past transactions or other past events. ACCT 1026 – Financial Accounting and Reporting | 2 This document is a property of University of Saint Louis Tuguegarao. It must not be reproduced nor transmitted in any form, in whole or in part, without expressed written permission. -reflect the total value of the property that the business has, and which is in its turnover. In other words, it is what it owns. LIABILITIES- Liabilities are future sacrifices of economic benefits that an organization is presently obliged to make to other organizations or individuals as a result of past transactions or events. -reflect the size of the financing of an organization’s assets by third parties, banks, and private financial institutions. This is what the company owes. EQUITY- represents the residual (what is left) once all fixed claims have been satisfied or simply “assets less/minus liabilities”. -equity characterizes the value of investments made in this organization by its owner/s Example 1: Juan dela Cruz started his Coffee Shop business by investing his Cash savings amounting to P 500,000.00 and borrowed P250,000.00 from ABC Bank. Assets= Cash P 500,000.00 (owned) Assets = Liabilities + Equity P 500,000.00 = P 250,000.00 + P 250,000.00 Liabilities= Loan P 250,000.00 (owed) Equity= Assets – Liabilities (P 250,000.00) Assets - Liabilities= Equity P 500,000.00 – P 250,000.00 = P 250,000.00 Assets – Equity = Liabilities P 500,000.00 – P 250,000.00 = P 250,000.00 THE EXPANDED ACCOUNTING EQUATION The expanded accounting equation provides more details for the owner's equity amount shown in the basic accounting equation. The expanded accounting equation for a sole proprietorship is: Assets = Liabilities + Equity (Owner's Capital) + Revenues – Expenses – Owner's Draws. ACCT 1026 – Financial Accounting and Reporting | 3 This document is a property of University of Saint Louis Tuguegarao. It must not be reproduced nor transmitted in any form, in whole or in part, without expressed written permission. The expanded accounting equation allows you to see separately (1) the impact on equity from net income (increased by revenues, decreased by expenses), and (2) the effect of transactions with owners (draws, dividends, sale or purchase of ownership interest). EQUITY- is the residual interest in the assets of the entity after deducting all the liabilities (IASB Framework). - is what the owners of an entity have invested in an enterprise. It represents what the business owes to its owners. It is also a reflection of the capital left in the business after assets of the entity are used to pay off any outstanding liabilities. REVENUE- is the income generated from normal business operations and includes discounts and deductions for returned merchandise. It is the top line or gross income figure from which costs are subtracted to determine net income. ACCT 1026 – Financial Accounting and Reporting | 4 This document is a property of University of Saint Louis Tuguegarao. It must not be reproduced nor transmitted in any form, in whole or in part, without expressed written permission. - - If the revenues earned are a main activity of the business, they are considered to be operating revenues. If the revenues come from a secondary activity, they are considered to be nonoperating revenues. Normally increases ASSETS. EXPENSE- An expense is the cost of operations that a company incurs to generate revenue. As the popular saying goes, “it costs money to make money.” - There are two main categories of business expenses in accounting: operating expenses and nonoperating expenses. Normally decreases ASSETS. ***The difference between revenue and expenses represents profit or loss. - If revenue is greater than expenses, the difference is profit If revenue is less than expenses, the difference is loss Example 2: Juan dela Cruz, on the first month of operating his Coffee Shop, earned a Revenue (received cash) of P 50,000.00 and incurred total expenses (paid cash) of in the amount of P 30,000.00 (Wages of crew/staff/cashier, Supplies, Rent, Utility Expenses). Assets= P 500,000.00 Liabilities= P 250,000.00 Equity= P 250,000.00 Revenue= P 50,000.00 Expenses= P 30,000.00 ASSETS = LIABILITIES + EQUITY + REVENUE - EXPENSES ACCT 1026 – Financial Accounting and Reporting | 5 This document is a property of University of Saint Louis Tuguegarao. It must not be reproduced nor transmitted in any form, in whole or in part, without expressed written permission. Example 1- Juan dela Cruz started his Coffee Shop business by investing his Cash savings amounting to P 500,000.00 and borrowed P250,000.00 from ABC Bank. P 500,000.00 Example 2- Juan dela Cruz, on the first month of operating his Coffee Shop, earned a Revenue (received cash) of P 50,000.00 and incurred total expenses (paid cash) of in the amount of P 30,000.00 (Wages of crew/ staff/ cashier, Supplies, Rent, Utility Expenses). P 50,000.00 P 250,000.00 P 250,000.00 -0- -0- P 50,000.00 (P 30,000.00) P 30,000.00 P 520,000.00 P 250,000.00 P 250,000.00 P 520,000.00 P 250,000.00 P 270,000.00 P 50,000.00 P 30,000.00 Meantime, we end our lecture here. Within the week, an online discussion will be conducted to expound the topic. Have a fruitful learning. *** END of LESSON 1*** REFERENCES: Textbook: Millan, Z. V. (2020). Financial Accounting and Reporting (Fundamentals). Baguio City: Bandolin Enterprise. References: 1. Ballada, W. (2019). Basic Financial Accounting and Reporting. Manila: DomDane Publishers. 2. Cabrera, E.(2017) Fundamentals of Accounting Volume I, GIC Enterprises & Co., Inc., Manila 3. Financial Reporting Standard Council (2017). Philippine Financial Reporting Standards. PICPA 4. Valencia, E. and Roxas, G. (2017), Basic Accounting, Valencia Educational Supply 5. Valix, C. and Peralta, J. (2018). Financial Accounting Volume I GIC Enterprises & Co., Inc., Manila 6. Valencia, E. and Roxas, G. (2017), Partnership and Corporation Accounting, Valencia Educational Supply Electronic Resource: 1. Accounting Basic https://www.accountingcoach.com/accounting-basics/explanation 2. Basic Accounting. https://www.bizfilings.com/toolkit/research-topics/finance/basic-accounting/theaccounting-system-and-accounting-basics 3. Basic accounting and bookkeeping lessons, http://www.moneyinstructor.com/accounting.asp 4. Financial Accounting. https://www.accountingcoach.com/financial-accounting/explanation 5. Accounting Tutorials for Beginners. https://www.guru99.com/accounting.html 6. https://corporatefinanceinstitute.com/resources/knowledge/accounting/accounting-equation/ 7. https://bobsteelecpa.com/accounting-equation-account-types-and-the-double-entry-accounting-equation/ 8. https://www.bookstime.com/what-is-the-accounting-equation 9. https://www.accountingcoach.com/blog/expanded-accounting-equation 10. https://accounting-simplified.com/equity.html ACCT 1026 – Financial Accounting and Reporting | 6 This document is a property of University of Saint Louis Tuguegarao. It must not be reproduced nor transmitted in any form, in whole or in part, without expressed written permission. 11. https://www.investopedia.com/ 12. https://courses.lumenlearning.com/sac-finaccounting/chapter/the-basic-accounting-equation/ ACCT 1026 – Financial Accounting and Reporting | 7 This document is a property of University of Saint Louis Tuguegarao. It must not be reproduced nor transmitted in any form, in whole or in part, without expressed written permission.
