Online-exclusive visual guides
1. One week, three answers — the same business under each basis
Tindahan ni Nina, week of June 1–7: renders ₱10,000 of tutoring (collects only ₱6,000 of it) and receives a ₱2,000 electricity bill (pays it next month). What is this week's income?
| Basis | Revenue recognized | Expense recognized | Net income | Acceptable for… |
|---|---|---|---|---|
| Cash basis | ₱6,000 (cash collected) | ₱0 (nothing paid yet) | ₱6,000 | Very small entities / some BIR filings — not PFRS |
| Accrual basis | ₱10,000 (earned) | ₱2,000 (incurred) | ₱8,000 | Required by PFRS — the reporting standard |
| Modified cash | Hybrid: balance-sheet items on accrual; income-statement items on cash | varies | Permitted by BIR for certain micro/small entities; not full PFRS | |
Why it matters: the same week produced two different income figures. Accrual reports economic activity (what was earned and used up); cash reports only movement of money. PFRS demands the economic picture.
2. The debit–credit compass
Everything increases on its own side of the equation. Drawings and expenses sit on the debit side because they pull equity down.
Memory hook (online exclusive): “D-A-D-E grows left; L-C-I grows right” — Drawings, Assets, … Expenses debit; Liabilities, Capital, Income credit.
3. Real, nominal, contra, adjunct — the four account personalities
| Personality | Behavior | Closed at year-end? | Examples |
|---|---|---|---|
| Real (permanent) | Balance carries into next year | No | Cash, Equipment, Accounts Payable, Capital |
| Nominal (temporary) | Measures one period only, then resets to zero | Yes — closed to capital | Revenue, all expenses, Drawings |
| Contra | Attached to a partner account, with the opposite normal balance; deducted in presentation | Follows its partner | Accumulated Depreciation (vs Equipment), Allowance for Bad Debts (vs A/R) |
| Adjunct | Attached to a partner account with the same normal balance; added in presentation | Follows its partner | Premium on Bonds Payable (vs Bonds Payable) |
Practice tools
Tool 1 · Accounting Equation Solver
Cover any one element and compute it from the other two. A = L + E, always.
Tool 2 · Transaction Effect Analyzer drill
For each transaction, choose the effect on the accounting equation.
Quiz · Twenty brand-new items
Fresh scenarios — none appear in the book's exercises.