The Fundamental Accounting Equation

Asset = Liabilities + Owners Equity

Assets is defined, the economic resources of the company, and include such items as Cash, Accounts Receivable, Inventories, Land, Building and Machinery.

Liabilities is defined, the obligation of the company arising in the course of business, and includes such items as Accounts Payable, Notes Payable, Loans Payable and mortgage.

Owners Equity is the residual or called net asset because it is equal to liabilities minus asset. Some accountants use Stock Holders Equity if it is a corporation and owners equity is for partnership and sole proprietor.

Example

1. Company ABC Inc., brought a machinery on cash Php 800,000.00 January 1, 2012
   What would be the journal entry  or  how to record to the book of ABC  company?

             Dr. - Debit
             Cr. - Credit

    To record machinery

        Dr.  Machinery    800,000.00

                            Cr. Cash   800,000.00


In this type of transaction only asset here has works, were no affect on liabilities and owners equity so that we called this Exchange of Asset. Were asset is used and also asset in return.