BASIC EDUCATION DEPARTMENT MARFRANCISCO, PINAMALAYAN,

Senior High School ORIENTAL MINDORO

043-284-7504

Abada College Basic Education Department

Date of Submission: Feb. 19, 2022

ABADA COLLEGE

MODULE 2

FUNDAMENTALS
OF
G ACCOUNTANCY,
BUSINESS &
R MANAGEMENT 1

11

PREPARED BY:

REYNAN D. GUINTO
ABM TEACHER

A W A R E N E S S. C O M M I T M E N T. E X C E L L E N C E. SERVICE
ABADA COLLEGE
SENIOR HIGH SCHOOL
BRGY. MARFRANCISCO PINAMALAYAN 5208, ORIENTAL MINDORO PHILIPPINES

LESSON 1 – INTRODUCTION TO ACCOUNTING

CONTENT STANDARD
The learners demonstrate an understanding of the accounting equation.

PERFORMANCE STANDARD
The learners shall be able to solve problems applying the accounting
equation.

At the end of this module, the students are expected to:

illustrate the accounting equation;
discuss the five major accounts;
perform operations involving simple cases with the use of
accounting equation;
prepare a Chart of Accounts; and
appreciate the importance of accounting equation to solve simple cases
in everyday operation of a business firms.

1| P a g e
ABADA COLLEGE
SENIOR HIGH SCHOOL
BRGY. MARFRANCISCO PINAMALAYAN 5208, ORIENTAL MINDORO PHILIPPINES

WHAT I KNOW

Directions: Read the statement carefully and write TRUE if the statement
is correct and FALSE if not. Write your answers on a separate
sheet of paper.

1. Accounting equation has two (2) sides.

2. Asset is equal to the total of liabilities and owner's

equity.

3. Assets, liabilities, and owner’s equity are the

components of the accounting equation.

4. Assets are the resources borrowed by the owner.

5. If the business has liabilities, it has obligations.

LESSON 1 – ACCOUNTING EQUATION

Formulas and equations are important to
solve a certain mathematical problem not
only in the fields of Mathematics and
Science but also in accounting. Its equation
has two sides - the left and the right side. The
left side of the equation is the company’s
assets and the liabilities and equity are
shown on the right side.

2| P a g e
ABADA COLLEGE
SENIOR HIGH SCHOOL
BRGY. MARFRANCISCO PINAMALAYAN 5208, ORIENTAL MINDORO PHILIPPINES

is composed of asset, liabilities, and owner's

equity. The asset is the sum of liabilities and
owner's equity, while liability is the difference
after the owner’s equity is deducted to
asset. Equity is the money that is bought by owners of the company for
running the business. There is also an extended accounting equation
where revenue and expenses are added.

Accounting equation is the foundation of other accounting formulas.

This helps one avoid confusions on computing assets, liabilities, or
owner's equity.

Remember that accounting equation must be balanced for each

transaction. It means that the asset should be equal to the total of
liabilities and owner's equity. The formula below shows that the asset is
the sum of liabilities and owner's equity.

A = L + OE

The accounting equation consists of three (3) major accounts:

1. Assets are the items that a company owns that can provide future
economic benefit. Assets are valuable resources controlled by the
company. Examples of assets are cash, supplies, accounts
receivable, and more.
2. Liabilities are the financial obligation of a company that results in
the company’s future sacrifices of economic benefits to other
businesses. Some of its examples are loans and accounts payable.
3. Equity is the money that is bought by owners of the company for
running the business. It is the residual interest of the owners which
means any asset left after paying liabilities is the right of the owner of
the business.

FOUR ELEMENTS THAT AFFECT THE EQUITY

a. Investment is an asset or item acquired with the goal of generating
income or appreciation.
b. Withdrawal occurs when funds are removed from an account for
personal use.
c. Revenue is the total amount of income generated by the sale of
goods or services related to the company’s primary operations.
d. Expenses is the cost of operations that a company incurs to generate
revenue.
3| P a g e
ABADA COLLEGE
SENIOR HIGH SCHOOL
BRGY. MARFRANCISCO PINAMALAYAN 5208, ORIENTAL MINDORO PHILIPPINES

To maintain this equation, transactions affecting financial position

accounts may have the following effects:

Increase in Assets = Increase in Owner’s Equity

Example: Calma started his new business by depositing Php 350,000.00
in a bank account in the name of Calma Graphics Design at Masa
Bank.

Increase in Assets = Increase in Liabilities

Example: Calma acquired computer equipment by issuing a Php
40,000.00 note payable to Microsoft Office Systems. The note is due in
six months.

Increase in one Asset = Decrease in another Asset

Example: Calma paid Php 10,000.00 to El Grande Suites for rent on the
office studio for the months of June, July, and August.

Decrease in Assets = Decrease in Liabilities

Example: Calma partially paid Php 15,000.00 for the purchase of
computer supplies on account.

Decrease in Assets = Decrease in Owner’s Equity

Example: Calma paid Php 5,000.00 to Bills Express for the semi-monthly
utilities.

Increase in Liabilities = Decrease in Owner’s Equity

Example: Yola Company billed Calma for Php 25,000.00 for the ads.
Calma will pay next month.

Here are the examples where you will see the effects of every
transaction to the major accounts.

Assets invested by the owner

July 1 – Sandy Dela Cruz started a catering service on July 1, 2020. She
invested Php 800,000.00 cash and car amounting to Php
200,000.00 which both happened in the month of July.

Assets Liabilities Owner's Equity

Cash Dela Cruz,
Php 800,000.00 Capital Php
+ 1,000,000.00
+

4| P a g e
ABADA COLLEGE
SENIOR HIGH SCHOOL
BRGY. MARFRANCISCO PINAMALAYAN 5208, ORIENTAL MINDORO PHILIPPINES

Car
Php 200,000.00
+

Borrowings from the bank

July 2 – Sandy Dela Cruz borrowed Php 100,000.00 cash from

Matagumpay Bank for her business.

Assets Liabilities Owner's Equity

Cash Loans
Php Payable Php
100,000.00 100,000.00
+ +

The asset purchased for cash

July 7 – Sandy bought tables and chairs from Matibay Furnitures and
paid Php 45,000.00 cash.

Assets Liabilities Owner's Equity

Cash
Php 45,000.00
(-)
Furniture
Php 45,000.00
+
Assets purchased on account

July 15 – Various equipment were purchased on account from Masigasig

Trucking Services for Php 55,000.00.

Assets Liabilities Owner's Equity

Equipment Php Accounts
55,000.00 Payable
+ Php 55,000.00
+

5| P a g e
ABADA COLLEGE
SENIOR HIGH SCHOOL
BRGY. MARFRANCISCO PINAMALAYAN 5208, ORIENTAL MINDORO PHILIPPINES

Cash withdrawal by the owner

July 18 – Sandy Dela Cruz made a withdrawal of Php 5,000 for her
personal use.

Assets Liabilities Owner's Equity

Cash Dela Cruz,
Php 5,000.00 Drawings
(-) Php (5,000.00)
(-)

Payment of liability

July 20 – The account due to Masigasig Trucking Services was paid in

cash.

Assets Liabilities Owner's Equity

Cash Accounts
Php 55,000.00 Payable
(-) Php 55,000.00
(-)
The table summarizes the effects of these transactions on the
accounting equation:

Date Assets

July Cash Car Furniture Equipment

1 Php Php
800,000.00 200,000.00
2 Php
100,000.00
7 Php Php
(45,000.00) 45,000.00
15 Php
55,000.00
18 Php (5,000.00)
20 Php (55,000)
Balances Php Php Php Php
795,000.00 200,000.00 45,000.00 55,000.00
Total Php
1,095,000.00
6| P a g e
ABADA COLLEGE
SENIOR HIGH SCHOOL
BRGY. MARFRANCISCO PINAMALAYAN 5208, ORIENTAL MINDORO PHILIPPINES

Balance

Date Assets

July Cash Car Furniture Equipment

1 Php Php
800,000.00 200,000.00
2 Php
100,000.00
7 Php Php
(45,000.00) 45,000.00
15 Php 55,000.00
18 Php
(5,000.00)
20 Php (55,000)
Balances Php Php Php Php 55,000.00
795,000.00 200,000.00 45,000.00
Total Php
Balance 1,095,000.00

Received cash for revenue earned

July 21 – Sandy Dela Cruz’s catering service was hired and Php 1
5,000.00 cash was received from the customers.

Assets Liabilities Owner's Equity

Cash Service
Php 15,000.00 Revenue Php
+ 15,000.00
+

Paid cash for expenses incurred

July 22 – Gas and oil worth Php 500.00, and car repairs worth Php
1,000.00 were paid in a cash transaction.

Assets Liabilities Owner's Equity

Cash Gas & Oil

7| P a g e
ABADA COLLEGE
SENIOR HIGH SCHOOL
BRGY. MARFRANCISCO PINAMALAYAN 5208, ORIENTAL MINDORO PHILIPPINES

Php (1,500.00) Php (500.00)

(-) Repair Exp.
Php (1,000.00)
(-)

Revenue rendered on account

July 24 – Dela Cruz’s catering service was hired again by a customer but
this time, the customer was not able to pay Dela Cruz on that
day. Instead, she made a promise to pay Php 16,000.00 on
July 31 and August 15.

Assets Liabilities Owner's Equity

Accounts
Receivable Php Service Revenue
16,000.00 Php 16,000.00
+ +

Paid for expenses incurred

July 25 – Dela Cruz paid Php 500.00 for the telephone bill.

Assets Liabilities Owner's

Equity
Cash Php Telephone
(500.00) expense
(-) Php (500.00)
(-)

Revenue earned with a down payment, balance on the account

July 27 – Another customer hired the catering service of Dela Cruz and
received a bill amounting to Php 20,000.00 and 50% of it was
collected.

8| P a g e
ABADA COLLEGE
SENIOR HIGH SCHOOL
BRGY. MARFRANCISCO PINAMALAYAN 5208, ORIENTAL MINDORO PHILIPPINES

Assets Liabilities Owner's Equity

Cash Service Revenue
Php 10,000.00 Php 20,000.00
+ +
Accounts
Receivable Php
10,000.00
+

Customer’s account collected in cash

July 30 – The customer on July 24 paid 50% of his account in cash.

Assets Liabilities Owner's Equity

Cash Php
8,000.00
+
Accounts
Receivable Php
(8,000.00)
(-)

Paid cash for expenses incurred

July 31 – Sandy Dela Cruz paid Php 10,000.00 for rental of office space,
and salaries of Php 9,000.00.

Assets Liabilities Owner's Equity

Cash Php
(19,000.00) Salaries Expense Php
(-) (9,000.00)
(-)
Rent Expense Php
(10,000.00)
(-)

The table summarizes the effects of these transactions on the

accounting equation, (increase or decrease in each account).
9| P a g e
ABADA COLLEGE
SENIOR HIGH SCHOOL
BRGY. MARFRANCISCO PINAMALAYAN 5208, ORIENTAL MINDORO PHILIPPINES

Sandy Dela Cruz’s Catering Service

Financial Transaction Worksheet
Month of July, 2020

Date Assets (in Php) Liabilities (i n Php) Owner’s Equity

July Cash Car Accounts Aguinaldo Other

Furnitures Equipme Receivabl Loans Account , Capital Account
nt e Payable s Title
Payable
1 P P P
800,000.00 200,000.00 1,000,000.0
0
2 P P
100,000.00 100,000.00
7 P P
(45,000.00) 45,000.0
0
15 P P
55,000.0 55,000.0
0 0
18 P P Dela
(5,000.00) (5,000.00) Cruz,
Drawings
20 P P
(55,000.00) (55,000.0
0)
21 P P Service
15,000.00 15,000.00 Revenue

22 P (500.00) P (500.00) Gas and

Oil

P P Repair
(1,000.00) (1,000.00) Expense

24 P P Service
16,000.00 16,000.00 Revenue

25 P (500.00) P (500.00) Telephon

e
Expense
27 P P P Service
10,000.00 10,000.00 20,000.00 Revenue

30 P 8,000.00 (8,000.00)

31 P P Rent
(10,000.00) (10,000.00) Expense

P P Salaries
(9,000.00) (9,000.00) Expense

Bal. P P P P P P P 0.00 P
807,000.00 200,000.0 45,000.0 55,000.0 18,000.00 100,000.00 1,025,000.
0 0 0 00
TOTAL BALANCES P P
1,125,000. 1,125,000.
00 00

10| P a g e
ABADA COLLEGE
SENIOR HIGH SCHOOL
BRGY. MARFRANCISCO PINAMALAYAN 5208, ORIENTAL MINDORO PHILIPPINES

ACTIVITY 1
Directions: For each transaction, tell whether the assets, liabilities, and
equity will increase, decrease, or have no effect. Write (+) for
increase, (-) for decrease, and NE for no effect. Write your
answers on a separate sheet of paper.
Assets Liabilities Owner's Equity
1. The owner invested
cash in the business.
2. The owner withdrew
cash for personal use.
3. The company received
cash from a bank loan.
4. The company paid
the bank loan.
5. The company
purchased supplies on a
cash basis.
6. The owner contributed
her personal computer to
the business.
7. The company
purchased equipment
on account.
8. The company
purchased a piece of
land with a down
payment and signed
note.

9. The owner bought

furniture for the
business on account.
10. The company
repaid its suppliers.

11| P a g e
ABADA COLLEGE
SENIOR HIGH SCHOOL
BRGY. MARFRANCISCO PINAMALAYAN 5208, ORIENTAL MINDORO PHILIPPINES

WHAT I KNOW

Directions: Identify what is described in each number. Choose the

word/s from the box below. Write your answers on a separate
sheet of paper.

Cash Tangible Assets

Prepaid Expenses Notes Payable
Inventories Capital
Long term Investments Income
Current Liabilities Expense

1. It is a medium of exchange on business transactions.

2. These are the bills paid in advance.
3. These are the assets / resources that are held for resale.
4. These are the investments of the firm made for long term
purposes.
_____5. These are obligations that reach their due dates for payments within
one year after the year-end date.
6. Examples of this are cash, supplies and furniture and fixtures.
7. Debts that are supported with written notes or promises.
8. These are worth of cash and other assets invested in the business.
9. It is the increase in resources resulting from the performance of
service or selling of goods.
_____10.It is the decrease in resources resulting from the operations of the
business.

LESSON 2 – TYPES OF MAJOR ACCOUNTS

In accounting, there are major accounts that you need to know
and understand clearly so you will not be confused on recording
business transactions. These are assets, liabilities, owner’s equity,
revenues, and expenses.

Assets, liabilities, and owner's equity have been discussed in the

previous lessons. You have also previewed the revenues and expenses.
Understanding of these lessons will enable you to debit and credit an
account which is an integral part of journalizing business transactions.

12| P a g e
ABADA COLLEGE
SENIOR HIGH SCHOOL
BRGY. MARFRANCISCO PINAMALAYAN 5208, ORIENTAL MINDORO PHILIPPINES

Let us first know the definitions of the five (5) major accounts:

A. Assets are the resources owned and controlled by the firm or the
company.
Examples of these are cash, computer systems and patents.
B. Liabilities are the obligations of the company arising from past events
which
are to be settled in the future. These represent what the company
owes to other people, organization, and financial institutions.
Examples of these are mortgages, vehicles and loans.
C. Equity or Owner’s Equity is the owner’s claims in the business. It is
part of the total assets that the owners of the company fully own.
An example of this is capital.
D. Revenue or Income is the money that the company earns from its
regular sales of products or services. This is earned by the company
through sales of products or services.
Examples of this are sale of building materials and accounting
services by a CPA firm.
E. Expenses are the money that the company spends to produce the
goods or services it sells.
Examples of these are rent expense, supplies expense and
salaries expense.

There are the two (2) classifications of assets:

1. Current Assets
2. Non- Current Assets

• Current Assets are assets that can be collected, sold, and even
used up to one year after year-end date.

Examples of Current Assets are:

➢ Cash is money on hand, or in banks, and other items

considered as a medium of exchange in business
transactions.

13| P a g e
ABADA COLLEGE
SENIOR HIGH SCHOOL
BRGY. MARFRANCISCO PINAMALAYAN 5208, ORIENTAL MINDORO PHILIPPINES

➢ Accounts Receivable are amounts due from customers

arising from debts.
➢ Notes Receivable are amounts due from clients
supported by a written note or promise.
➢ Inventories are assets held for resale in the course of the
business.
➢ Supplies are items purchased by an enterprise that is
unused as of the reporting date.
➢ Prepaid Expenses are advance payment for expenses.
➢ Accrued Income is an income or revenue earned by the
firm but not yet collected.
➢ Short-term Investments are the investments made by the
company that is intended to be sold immediately.

• Non-current Assets are assets that cannot be collected, sold, and

even used up to one year after year-end date.

Examples of Non-Current Assets

Property, Plant, and Equipment are long-lived assets that have

been acquired for use in operations.
Long term Investments are the investments of the firm made for
long term purposes.

• Tangible Assets are physical assets in the form of cash, furniture

and fixtures, and supplies.

• Intangible Assets are non-physical assets in the form of

trademarks and patterns.

Current Liabilities are those that reach its due date for payment (paid,
recognized as revenue) within one year after year-end date.

Examples of Current Liabilities

• Accounts Payable are amounts due or debts to the suppliers for

goods purchased or for services received on account.
14| P a g e
ABADA COLLEGE
SENIOR HIGH SCHOOL
BRGY. MARFRANCISCO PINAMALAYAN 5208, ORIENTAL MINDORO PHILIPPINES

• Notes Payable are amounts due to third parties supported by a written

note or promise.
• Accrued Expenses are treated as liabilities since these are the
expenses that are incurred but not yet paid (e.g., salaries payable,
taxes payable).
• Unearned Income is cash or payment collected in advance.

Non-current Liabilities are those that do not reach its due date for
payment, (paid, recognized as revenue) within one year after year-end
date.

Examples of Non- Current Liabilities

• Loans Payable is a contract wherein the owner of the property

gives the right to use it to another party in exchange for an interest
payment and gives back the property at the end of their contract.
It is documented by promissory note. And in the case, there is still
a portion which is unpaid as of the date of a company's balance
sheet, the remaining balance on the loan is called a loan
payable.

• Mortgage Payable is the liability of a property owner to pay a

loan that is secured by property and from the borrower’s point of view.
The mortgage is considered as long-term liability. Some part of the
debt that is payable within the next 12 months is classified as a short-
term liability. The remaining unpaid principal will be the total
amount due of the loan.

Just like in assets, there is also a classification when it comes to a liability

account.

There are two (2) important elements that comprised the equity:

• Capital is the worth of cash and other assets invested in the

business.
• Drawing is an account debited for assets withdrawn by the owner for
personal use from the business.

-is the increase in resources resulting from the performance

of service or selling of goods.

15| P a g e
ABADA COLLEGE
SENIOR HIGH SCHOOL
BRGY. MARFRANCISCO PINAMALAYAN 5208, ORIENTAL MINDORO PHILIPPINES

Examples of income accounts are:

• Service revenue for service entities

• Sales for merchandising and manufacturing companies
• Interest Income

-is the decrease in resources resulting from the operations

of the business.

Examples of expense accounts are:

• Salaries expense
• Interest expense
• Utilities expense

-is a listing of all accounts used by companies in

their financial records.

Here are the five steps in preparing a basic chart of accounts:

1. Make two columns.

2. Prepare the assets, liabilities, equity, revenue, and expenses,
respectively.
3. List all assets, liabilities, equity, revenue, and expenses account in
the first column.
4. In the second column, choose an account code (this may vary
depending on the company).
5. In the third column, write the description of each account title.

16| P a g e
ABADA COLLEGE
SENIOR HIGH SCHOOL
BRGY. MARFRANCISCO PINAMALAYAN 5208, ORIENTAL MINDORO PHILIPPINES

Chart of Accounts
Account Account Title
Code
Assets
101 Cash
102 Accounts Receivable
103 Inventory
104 Prepaid Expense
105 Supplies
106 Equipment
107 Building
108 Land
Liabilities
201 Accounts Payable
202 Notes Payable
Capital
301 Owner’s Capital
302 Owner’s Drawing
401 Service Revenue
501 Salaries Expense
502 Rent Expense
503 Utilities Expense

17| P a g e
ABADA COLLEGE
SENIOR HIGH SCHOOL
BRGY. MARFRANCISCO PINAMALAYAN 5208, ORIENTAL MINDORO PHILIPPINES

ACTIVITY 2

Directions: Prepare a chart of accounts for J. Padilla Barber Shop.

Write your answers on a separate sheet of paper.
Account Code Account Titles
Padilla, Drawings
Equipment
Accounts Payable
Notes Payable
Land
Prepaid Expense
Service Revenue
Padilla, Capital
Utilities Expense
Building
Rent Expense
Cash
Supplies
Accounts
Receivable
Salaries Expense
Inventory

------------------------------------------- GOOD LUCK----------------------------------------------------

18| P a g e
ABADA COLLEGE
SENIOR HIGH SCHOOL
BRGY. MARFRANCISCO PINAMALAYAN 5208, ORIENTAL MINDORO PHILIPPINES

PREPARED BY:

REYNAN DELOS REYES GUINTO

SHS TEACHER
EMAIL - ynan.blantyre@gmail.com
FB MESSENGER – ynan20

Checked by:
MR. VINCENT ROI D. MENDIZABAL
SHS COORDINATOR

Noted by:
MS. CATHERINE L. VENZON
ACADEMIC COORDINATOR

Approved by:
MRS. EMELYN MARASIGAN NARRA
BASIC EDUCATION PRINCIPAL

19| P a g e
ABADA COLLEGE
SENIOR HIGH SCHOOL
BRGY. MARFRANCISCO PINAMALAYAN 5208, ORIENTAL MINDORO PHILIPPINES

A W A R E N E S S. C O M M I T M E N T. E X C E L L E N C E. S E R V I CE

20| P a g e