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Accounting Equation Example

Paolo Reyes started a delivery service on July 1, 2013, investing PHP800,000 in cash and PHP200,000 in cars. Throughout July, Reyes purchased various assets for the business, borrowed PHP100,000 from the bank, and received revenue from customers. Reyes also paid expenses such as equipment, supplies, utilities, and salaries, as well as a loan payment. By the end of the month, the document outlines the business's cash flows and transactions to determine its profit for July.

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8K views

Accounting Equation Example

Paolo Reyes started a delivery service on July 1, 2013, investing PHP800,000 in cash and PHP200,000 in cars. Throughout July, Reyes purchased various assets for the business, borrowed PHP100,000 from the bank, and received revenue from customers. Reyes also paid expenses such as equipment, supplies, utilities, and salaries, as well as a loan payment. By the end of the month, the document outlines the business's cash flows and transactions to determine its profit for July.

Uploaded by

MD Dee
Copyright
© © All Rights Reserved
We take content rights seriously. If you suspect this is your content, claim it here.
Available Formats
Download as PPTX, PDF, TXT or read online on Scribd
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Assets invested by the owner

July 1 - Paolo Reyes started a delivery service on July 1, 2013. The following transactions occurred
during the month of July. He invested PHP800,000 cash and Cars amounting to PHP200,000

Borrowings from the bank

July 2 – Reyes borrowed PHP100,000 cash from PNB for use in his business.
Asset purchased for cash

July 7 – Bought tables and chairs from Orocan and paid PHP45,000 cash

Assets purchased on account

July 15 – Various equipment were purchased on account from Fortune for PHP55,000
Cash withdrawal by the owner

July 18 – Reyes made a cash withdrawal of PHP5,000 for personal use

Payment of liability

July 20 – The account due to Fortune was paid in cash


Determining profit through operation

• Accrual basis of accounting vs Cash basis of accounting – accrual basis


recognizes revenue when earned and recognizes expenses when incurred

• Under the expense recognition principle, expenses can be recognized either


as:

(1) matching;
(2) systematic allocation, or;
(3) direct association.

• Profit measures the performance of the company. If the revenue exceeds


expenses, then it is a net profit; otherwise, it is a net loss.
Received cash for revenue earned

July 21 – A customer hired the services of Reyes. Cash of PHP15,000 was received from the customers.

Paid cash for expenses incurred

July 22 – Cash was paid for the following : gas and oil, PHP500 and car repairs, PHP1,000.
Revenue rendered on account

July 24 – Another customer hired the services of Reyes and promised to pay PHP16,000 on July 31.

Paid for expenses incurred

July 25 – Paid PHP500 for telephone bill.


Revenue earned with a downpayment, balance on account

July 27 – Another customer hired the services of Reyes. A bill was issued to them for PHP20,000, 50% of
which was collected

Customer’s account collected in cash

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


Paid cash for expenses incurred

July 31 – Paid PHP10,000 for rental of office space, and salaries of PHP9,000
ACTIVITY TIME
1. The owner invested cash of PHP150,000 or the business earned PHP150,000 cash from providing
services.

2. Purchased equipment at PHP20,000 for cash.

3. The owner withdrew cash of PHP112,500 or the business incurred PHP112,500 expenses and paid in
cash.

4. The company purchased supplies on account, PHP4,000.

5. The owner withdrew cash of PHP15,000 or the business incurred PHP15,000 expenses and paid in cash.

6. Paid liabilities worth PHP53,000.

7. The owner withdrew supplies worth PHP8,000 or the business used supplies worth PHP8,000.

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