BOOKKEEPING NOTES

WHAT IS BOOKKEEPING:
● Is the process of recording systematically all financial transactiong undertaken by a business (or and
individual) in a chronological manner.
● It also covers Classifying properly the business transaction, and at the end of the cycle period, included in
the bookkeeping is Summarizing the recorded and properly classified business transactions for a given
accounting period.

BOOKKEEPING PROCESS:
● RECORDING
●CLASSIFYING
● SUMMARIZING

A. RECORDING analyzing what kind of transaction of the business, analyzing and record transactions in General
Journal in chronological manner.

B. CLASSIFYING classifying the transactions the transfer or record them to their respective General Ledger or
Subsidiary Ledger
C. SUMMARIZING Prepare for the Trial Balance and Adjusting Entries.
TRIAL BALANCE > worksheet wherein balance of all ledger are summarized into debit and credit account column.
ADJUSTING ENTRIES > accounting journal entries that convert a companys accounting records to the accrual
basis of accounting.
Steps:
● Review & analyze the financial transac on
● Journalize the transac ons to the general journal
● Post to the general ledger
● Prepare Adjusted Trial Balance

WHAT IS BUSINESS?
Business is the SOCIAL SCIENCE of MANAGING PEOPLE to organize and maintain collective PRODUCTIVITY
toward accomplishing particular productive goals which is usually to generate profi.

NATURE OF BUSINESS
SERVICE CONCERN Derived its income from services rendered to clients
Professional > Accountant, Doctors, Lawyer, Engineer.
Non Professional > Laundry Shop, Car repair shop, Janitorial Servicing, Hotel,
Restaurants
MERCHANDISING Business engaged in buying goods or commodities or any form of finished
products and sells it for profit. (retail or wholesale basis).
> Grocery Stores, Sari-sari store, buy and sell car.
MANUFACTURING Business engaged in buying of raw materials and supplies to be processed or
manufacturers, converting them into finished products for sale at a profit.

> Car Dealer, Factories, Home Appliances Manufacturer.

AGRICULTURE Business engaged in planting of crops and sells its products either in raw of
finished form at a profit.
>Planting crops , selling crops

LEGAL FORMS OF BUSINESS ORGANIZATION

SOLE PROPRIETORSHIP Simplest form of business organization.
● Capital is owned and provide by only one person called "Proprietor" who
manage the business.
● Bakery / Sari-Sari store
PARTNERSHIP Owned or provide by two or more person called "Partners" who should set
forth agreements among themeselves
●Family Resort
CORPORATION Comprised of many individuals, min. of 15 persons.
●called incorporators - who acts as single en ty
ONE PERSON A special corporation with a single stockholder.
CORPORATION (OPC)

COOPERATIVE an association of persons with a common bond of interest, who have

voluntarily joined together to achieve a lawful common social or economic
end, making equitable to contribute to the capital required and accepting a
fair share of the risk and benefits.
 DIFFERENT TYPES OF BOOKKEEPING SYSTEM
1 Single Entry Bookkeeping most simple and uncomplicated system of accounting since all the
System transactions is entered into a single column, similar to checkbook register

Samples below:

2 Double Entry Bookkeeping serves as a boon for large business that have lots of assets, thousands of
System transactions and various external supplier of capital.
● in this system two entries are made for each transac on, one in a debit
acount and another in a credit account.

BASIS OF ACCOUNTING
1 CASH BASIS Actual cash receipt & actual cash payment are recorded.

2 ACCRUAL BASIS
The income whether received or not, but has been earned or accrued during
the period forms part of the total income of the period.

NORMAL BALANCES OF ACCOUNTING ELEMENTS

In accounting principle, accounting elements have its so called "Normal Balance". T Account used to indetify and record the
transaction.
SAMPLE:
REMENBER THE WORD " DEA - LER"
D - DRAWING L - LIABILITIES
E - EXPENSE DEBIT (+) E - EQUITY / CAPITAL CREDIT (+)
A - ASSETS R - REVENUE / INCOME

WHAT IS ACCOUNT?
● Refers to Assets, Liabili es, income, expenses and equity as represented by individual ledger pages to which changes in value are
chronologically recorded with debit and credit entries.

FIVE ACCOUNT TYPES

ASSETS ● What company owns
Like: Cash, supplies, inventory, land, bldg., equipment
LIABILITY ● What company owes in a long term manner.
like: account payable, loans payable
EQUITY/ CAPITAL ● Company's networth
like: common stocks, paid in capital, retained earnings
REVENUE / INCOME ● Amount of the company earned
like: Sales revenue, Service revenue
EXPENSES ● Expenditures of the Business like a monthly basis
Like: Utilities expense, accrued expense, rent expense

REPORTS FOR FINANCIAL STATEMENT

BALANCE SHEET ● Based on the fundamentals equa on | ASSETS = LIABILITIES + EQUITY
● Represents the current state of the company in a single moment of me.
● shows the Financial Position of the company
● What you see in the Balance Sheet:
ASSETS
> Current Assets (cash, accnt receivable, inventory, prepaid expense,accrued interest,
cash advance)
> Non Current Assets (land, bldg., equipment, f&f, less: accumulated depreciation)
LIABILITIES
> Current Liabilities (accnts payable, notes payable , payable in one year)
> Non Current Liabilities (debts payable in a longer period like bonds payable)
OWNERS EQUITY (Share Capital, net worth, retained earnings, treasury stocks)
REPORTS FOR FINANCIAL STATEMENT
INCOME STATEMENT ● Alson known as Profit & Loss statement or P&L
● Equa on: REVENUE - EXPENSE = NET INCOME
● NET INCOME = (TOTAL REVENUE + GAIN) - (TOTAL EXPENSE + LOSSES)
● Show the income & expenses of a company for a specified period of me (financial year / one month)
● Shows the Performance of the business
● What you see in the Income Statement:
REVENUE/INCOME (Sales revenue, gains, dividends)
EXPENSES (Operating expense, advertising, professional fee exp.)

What are Account Titles?

● Account tles are iden fica ons or brief descrip on of items that fall to same kind, class or nature.
● In recording business transac ons, the elements of financial statements which are be er known as "accoun ng elements" or "accoun ng
values" are to be assigned with their individual names called "account titles".
● Iden fica on or short descrip on of transac on. like: Cash, Expenses, Drawings, note receivable.

SAMPLES OF ACCOUNT TITLES FOR FIVE ACCOUNT TYPES

ASSETS
A. CURRENT ASSETS Assets expected to be realized, sold or consume within the normal business operating cycle.
CASH > money either paper or coin, checks dated, bank draft and treasury warrants.
Account title will be "CASH ON HAND" and "CASH IN BANK" if deposited in the bank.
PETTY CASH FUND > title for money placed and set aside for petty or small expenses
NOTES RECEIVABLES > Promisory note that is received by the company from the cusstomer arising
from rendering services, sales or merchandise etc.
ACCOUNT RECEIVABLE > For amount collectible arising services rendered to a customer or client on
credit or sale of goods to customer on accounts. oral or verbal promise to pay by a customer or
client.
ALLOWANCE FOR BAD DEBTS > an "asset offset" or a "contra asset" account. provide for possible
losses from uncollected accounts. this is not actually an asset, it is classified as such bcoz it is shown
as a deduction from the account receivable which is a current asset account.
ACCRUED INTEREST INCOME > the amount interest earned on a Notes Receivable which is not yet
collected . (If the note is interest - bearing).
ADVANCES to Employees > account title for amounts collectible from employees for allowing them
to make cash advances which are deductible against their salaries or wages.
INVENTORIES > Assets which are (1) held for sale in the ordinary day of business; (2) in the process of
production of such sale; (3) in the form of materials of supplies to be consumed in the production
process or int rendering of services.
PREPAID EXPENSES > account title for cost of stationery and other supplies purchased for use but are
left on hand and still unused. Sample: "Unused Office supplies", "unused shop supplies" etc.

*** These accounts are normally arranged to "liquidity" or ready to conversion to cash in the
balance sheet.***
B. NON CURRENT ASSETS all other assets that not classified as current should be classified as non current assets.
PROPERTY AND EQUIPMENT : the international accounting standards no. 16 defines property and
equipment as "tangible assets which are held by an enterprise for use in production of supply of
goods and services. For rental to others, or for adminitrative purposes, and are expected to be used
during more than one period" such as:
 (Non Current Assets)
LAND > account title for the site where the bldg. used as office or store of the business.
BUILDING > account title for a finished construction owned by the business and used to run the
business. Like owned factories or offices
EQUIPMENT > includes calcultors, typewriters, adding machines, computer if used in the business or
office - Office Equipment or if used in the store - Store Equipment .
Truck, jeeps, vans, automobiles and other kind of motor vehicles - Transportation Equipment or if for
vehicle is used for delivery - Delivery Equipment.
FURNITURE & FIXTURES > includes chairs, tables, counters, display cases and the like, if used in the
office - Office Furniture & Fixtures , if used in the store - Store Furniture & Fixtures .
ACCUMULATED DEPRECIATION > called as "Asset Offset" or "Contra Asset" account. A deduction from property
and equipment or cost of the fixed assets.
*** Assets that are classified as Property & Equipment or Fixed Assets are called "Depreciable Asseets" and
are subject to "Depreciation" except Land***

LIABILITIES
A. CURRENT LIABILITIES financial obligations of the company which are expected to be settled in the normal course of the operating cycle
or due to be settled within one year from the balance sheet date.
ACCOUNTS PAYABLE > acocunt title for a financial obligation of the company via oral or verbal promise to pay.

NOTES PAYABLE (SHORT TERM) > obligation evidenced by a promisory note issued by the company.
ACCRUED EXPENSES > expenses incurred by the company but not yet paid. Usually occurs when the accounting
period ended such as unpaid rent, unpaid utilities, unpaid salaries for employees already rendered, interest for
loans, taxes payable etc.
SSS PREMIUM PAYABLE > amount due and payable to SSS
PHILHEALTH PREMIUM PAYABLE > refers to the amount due and payable to Philhealth
PAG-IBIG PREMIUM PAYABLE > amount due and payable to Pag-ibig
WITHHOLDING TAX PAYABLE > amount due and payable to BIR for the tax withheld from the employees

PRE-COLLECTED OR UNEARNED INCOME > account title for an income collected or received in advance but not
yet considered as "earned" or not yet perform.
B. NON CURRENT Long term liabilities that are debts payable over a longer period of time.
LIABILITIES
BOND PAYABLE > account includes the amortized amount of any bonds the company has issued.
LONG TERM DEBT > account includes the total amount of long term debt. (excluding the current
portion, if that account is present under current liabilities.)
> this account is derived from the debt schedule, which outlines all the companys outstanding debt.

OWNER'S EQUITY CAPITAL > the center of the owners concern because this may increase or decrease based on the
result of business operation. Owners equity will be increased by "income" and decreased by
"expenses".
SAMPLE: MR. ENRICO REYES, CAPITAL
WITHDRAWAL / DRAWING > owners withdrawal or personal withdrawals to the companys funds
sample: MR ENRICO REYES, DRAWING
INCOME SUMMARY / RETAINED EARNINGS > a Temporary account used at the end of the accounting cycle or
period. Where income and expenses are temporarily closed to this account.

INCOME / REVENUE SALES > represents revenue derived from sales of merchandise.
SERVICE INCOME > account title used for all types of income derived from rendering of services. Sometimes used
as "Service Revenue", other specific income account title as follows;
PROFESSIONAL INCOME > used by professionals for income earned from practice of their
profession, for Accountants - Accounting and Auditing Fees Income.
for Lawyers - Legal Fees Income, for Doctors - Medical Fees Income.
RENTAL INCOME > income earned on the building, space or other properties owned and rented out
by the business as the main line of its activity.
INTEREST INCOME > income received by the business arising from an amount of money borrowed
by a promissory note.sample: Lending institution.
MISCELLANEOUS INCOME > incomed earned by the business which is not the main line of its
activity and could not be clearly classified.

EXPENSES COST OF SALES OR COST OF GOODS SOLD > cost to produce and sell the good.
RENT EXPENSE > for the amount paid or incurred for use of property.
REPAIR & MAINTENANCE EXPENSE > incurred in repairing or servicing the bldg., machineries, vehicle, equipment
etc.. Which are owned by the business.
STATIONERY AND OFFICE SUPPLIES EXPENSE > for supplies of stationary, envelope, clips, fasteners, papers etc.
used by the business. For office use account title is "Office Supplies Expense", if in stores "Store Supplies
expense".
 (Kind of Expenses)
SALARIES EXPENSE > compensation given to employees of the business. May be specific as "Office Salaries",
"Salesmen's Salaries", etc.
BAD DEBTS > for the anticipated loss that the business may incur arising from uncollectible accounts.
DEPRECIATION EXPENSE > for the allocated expired portion of the cost of property and equipment or fixed
assets.
TAXES AND LICENSES > account title used for the amount paid for business permits, licenses and other govt.
dues except for the Income Tax paid which is not allowable by law as a deduction.
INSURANCE EXPENSE > account title for expired portion of the insurance premium paid.
UTILITIES EXPENSE > account title for electricity bill, water bill, telephone or internet bill.
SSS CONTRIBUTION > account title for employers share on sss contribution.
PHILHEALTH CONTRIBUTION > account title for employers share on medical care contribution
PAG-IBIG CONTRIBUTION > account title used for the employers share on Pag-Ibig conribution.
MISCELLENEOUS EXPENSE > account title for any amount paid as expense but not yet indetify for particular
classification.

CHART OF ACCOUNTS
● Business requires to prepare the chart accounts for which is a classified list of account tles used to record transac ons.
● It is customarily provide a guide to the bookkeeper in the formal recording of business transac ons and events.
● the prepara on of a chart of accounts covers the following:
1. Determination of what specific account are required. (depends on the nature of business)
2. Selection of appropriate and descriptive titles for the accounts.

THE ACCOUNTING CYCLE

THE ACCOUNTING CYCLE
1. SOURCE DOCUMENTS: Official Receipts, vouchers statement of accounts, promisory note, purchase order, sales invoice.

2. JOURNALIZING Record transactions on the General Journal (GJ), identify the account title to be used and what is the normal
balance of the account.

3. POSTING After recording on General Journal, transactions should also be posted or record on both General Ledger and
their Subsidiary Ledger accounts, after recording to general ledger copy the account code of each account titles
to general journal.
sample: Cash Ledger, Account Receivable,

4. TRIAL BALANCE or Preparation for "Unadjusted Trial Balance". This is done on the end cycle of the business sample monthly (end
of the month).
● copy the total amount of each General Ledger to the Unadjusted trial balance sheet,
● if there is no transac ons that needs to adjust, you can now prepare Trial Balance.
● to check if all the balances are tally and correct.
THE ACCOUNTING CYCLE
5. ADJUSTING ENTRIES ● Journal lentries usually prepared at the end of an accoun ng period to recognize income and expense which
are actually incurred.
● check for other transac ons or other necessary informa on of the business for reconcila on.
● if the business is processing accrued transac ons in the business.
Sample:

COMMON SOURCES OF ADJUSTING ENTRIES

A. BANK RECONCILIATION - adjustments made to correct the cash balance.
● Types of Reconciling Items:
Bank Reconciling Items (posted in the books but not yet in the bank)
Outstanding Checks > checks already released by the company but not yet cleared in the bank.
Deposit in Transit > deposit made after the bank statement was issued, but have been recorded
on the books
Book Reconciling Items (posted in the bank but not yet recorded in the book)
Collections Received by the bank (Credit Memo) - happens when the customer directly make a
deposit to companys bank account but the company is not yet informed.
Non-sufficient Funds (NSF) - checks received and deposited but the issuers bank doesn't have
enough funds to cover the amount written on check. (a.k.a. bouncing checks)
Error - mistakes on the recording of the amount either on the side of the bank or the company.
(Note: This should be analyzed first and make adjustments).
B. ACCRUALS - expenses already incurred but not yet paid
THE ACCOUNTING CYCLE
Sample of Accruals

C. PREPAYMENTS - expense paid in advance.

D. DEPRECIATION - allocation of costs of an asset over its useful life. (use formula)
Sample of Depreciation entry :

E. Provision for Estimated Doubtful Accounts - anticipated loss that the business may incur arising fromthese
doubtful accounts.

D. ADJUSTMENT ON INVENTORIES - account the quantity of used and unused inventories.

G. CORRECTION OF ERRNEOUS JOURNAL ENTRIES - correcting the wrong entries being recorded in the journal

6. WORKSHEET Preparing worksheet is optional (if you are newbie or student you may request to prepare)
but in actual preparation of financial statement this is not required.
THE ACCOUNTING CYCLE
(sample of worksheet)

7. FINANCIAL STATEMENT if all transaction are already posted and check you can naow prepare of the following;
A. INCOME STATEMENT - this is to get the Net Income amount for balance
sheet statement.
● NET INCOME = (TOTAL REVENUE + GAIN) - (TOTAL EXPENSE + LOSSES)

B. BALANCE SHEET STATEMENT (ASSETS = LIABILITY + EQUITY)

THE ACCOUNTING CYCLE

C. STATEMENT OF CASH FLOW - based on the cash ledger transactions

● Opera ong - list of cash transac on during daily opera on.
● Inves ng - cash transac on in purchasing fixed asset
● Financing- cash transac on use for drawing, funding

D. STATEMENT OF OWNER'S EQUITY -show the changes made in share capital, retained earnings and
accumulated serves. (based on Capital in Balance Sheet)

8. CLOSING ENTRIES Closing the books of accounts to prepare for the new cycle of accunting period. Usually done per
month and yearly basis.
FINANCIAL STATEMENT : POST CLOSING TRIAL BALANCE .
● To prepare the Post Closing Trial Balance, you neet to inden fy the Temporary Accounts and
transfer them to "Income Summary" then transfer to Owners Capital and close the ledger so it will
never carry over on next accounting cycle.
● Make adjustment to the General Ledger to close month transac on
● Temporary accounts that need to be closed:
Service Revenue, Expenses (rent,utility,salaries), Drawings
THE ACCOUNTING CYCLE
(sample of closing entries)

Steps:
1. close the Revenue Ledger date entry should be the last day of the month.
In General Journal, reverse the normal balance of revenue from credit to debit and use "Income Summary" as
temporary Account for credit side. Description : To close service revenue to income summary, Reference no. TB
(Trial Balance)
2. Close all the Expenses incurred for the month and transfer to Income Summary as temporary account.
From normal balance of expense in debit side, transfer them to credit side use Income Summary for Debit side.
Description : To close various expenses to income summary. Reference No. TB (Trial Balance).

3. Close the Income Summary

To close Income Summary it should be transfer to Capital or Owners Equity.
Income Summary in a Debit side, the value should be the difference of Revenue and all Expenses amount
(Revenue - all expenses). Capital on the Credit side. Description: to close Income summary to capital.

4. Close Drawings and transfer to Capital.

Drawings - Debit, Capital - Credit, Description : To close withdrawal to Capital
5. last step: close all the temporary account in general ledger or subsidiary ledger.

9. POST CLOSING TRIAL These are the list of all permanent accounts that will be carry over on the next accounting period of
BALANCE the business.
● worksheet wherein balances of all ledger are summarized into debit and credit account column
after closing the temporary accounts.
THE ACCOUNTING CYCLE
10. SET UP BEGINNING This is to prepare the new cycle of accounting processes or bookkeeping process of the business. This is the 1st
BALANCE thing to do in General Ledger before recording a new transactions.
To do this, all permanent accounts posted in "Post Closing Trial Balance" will be recorded in General Ledger
dated 1st Day of the Month.

***The cycle continues if the business still exist and operates****