BOOKKEEPING

HAND-OUTS
(BASIC COMPETENCIES)
INTRODUCTION

What is Bookkeeping?
In wikipedia:

Bookkeeping is the recording of financial transactions, and is part of the process of accounting in business.
Transactions include purchases, sales, receipts, and payments by an individual person or an organization
/corporation.

There are several standard methods of bookkeeping, including the single-entry & double-entry bookkeeping
systems - any process for recording financial transactions is a bookkeeping process.- It is the work of
a bookkeeper/book-keeper, who records the day to day financial transactions of a business.

In Debitoor Dictionary:

Accounting terms explained simply, Bookkeeping - is the systematic recording and organising of financial
transactions in a company.

- same with wikipedia, it’s the recording, on a day-to-day basis, of the financial transactions and information
pertaining to a business. It ensures that records of the individual financial transactions are correct, up-to-date
and comprehensive.

ACCURACY - is therefore vital to the process.

UNDERSTANDING AND USING DEBITS AND CREDITS

Bookkeepers and accountants use debits and credits to balance each recorded entry for a company's balance
sheet and income statement accounts. Double-entry accounting, debits, and credits all tie into the accounting
equation:

Assets = Liabilities + Owners' Equity

01. Debits and Credits: Why Are They Important?

• Every business transaction has a buyer and a seller. The business sells a product /service to a
customer/client.
• Debits and credits are challenging to understand: On the T-account, always shown Debits on the left, and
Credits on the right.
• When you understand this first step, you've come a long way toward understanding debits and credits.

02. How to Record Debits and Credits As Journal Entries?

• T-accounts - used by accounting instructors to teach how to journal transactions, which ledger side is
debits and which side is credits – T Account.

• In actuality, accounting transactions are re-corded by making accounting journal entries.

• Debits get recorded on the first line of the entry, flush with the left margin. Credits get recorded on the
second line and are indented to the right a couple of spaces.
03. How to Record Debits and Credits for Asset Accounts?

• Assets consist of items owned by a company, (inventory, accounts receivable, fixed assets-plant &
equipment), or other account, either current assets or fixed assets on the balance sheet.

• Memorize the rules that debits are increases in asset accounts, while credits are decreases in asset
accounts.

• In a general ledger, increases in assets recorded as debits (left side); and decreases in assets recorded as
credits (right side).

Let's say a company buys a large quantity of inventory, Current asset, for holiday sales, and the company pays
10,000 cash. Inventory has increased so it’s a debit, cash decreased, so it’s a credit entry. The journal entry
would look like this:

DEBIT CREDIT

Inventory 10,000

Cash 10,000

If the company decided to sell a building for 250,000 and received cash for the property. Cash, an asset,
increased so it would be debited, decreased, would be credited. The journal entry would look like this:

DEBIT CREDIT

Cash 250,000

Fixed Assets 250,000

04. Recording Debits & Credit for Liability & Owner's Equity Accounts

• Liabilities are items on a balance sheet that the company owes to vendors or financial institutions,
can be current liabilities, such as accounts payable & accruals, or long-term liabilities, such as bonds or
mortgages payable.

• Owner's equity accounts sit on the right side of the balance sheet, (common stock & retained earnings)
– they are treated exactly the same as liability accounts when it comes to journal entries.

• Debits are decreases in liability accounts. Credits are increases in liability accounts. Here's the rule for
liability accounts:

Increases in liabilities, recorded as credits- on the right side of the ledger; Decreases in
liabilities, recorded as debits- on the left side.
Let's say a company owes one of its suppliers 1,000 and that bill is now due. What companies owe their
suppliers are accounts payable, (liability on the balance sheet). Here’s how the journal entry would look:

DEBIT CREDIT

Accounts Payable 1,000

Cash 1,000

You would debit accounts payable because you paid the bill, so the account decreases. Cash is credited
because cash is an asset account that decreased because cash was used to pay the bill.

If this company decided to purchase 15,000 in inventory from a supplier and do it on credit - accounts payable,
the journal entry would look like this:

DEBIT CREDIT

Inventory 15,000

Accounts Payable 15,000

You would debit inventory because it is an asset account that increases in this transaction and accounts
payable is credited to a liability account that increases because the inventory was purchased on credit.

Let's look at a journal entry for the owner’s equity account. Say a business has two owners and one owner
wants to invest an additional 50,000 in the business. Here's the resulting journal entry:

DEBIT CREDIT

Cash 50,000

Owner’s Equity 50,000

Cash increases when you make the investment. It's an asset account, so an increase is shown as a debit and an
increase in the owner's equity account shows as a credit.
 TRAINING REGULATIONS
BOOKKEEPING NCIII
QUALIFICATION
Consists of competencies that a person must achieve to enable him/her to:
• journalize transactions,
• post transactions,
• prepare trial balance,
• prepare financial reports and
• review internal control system.

CHART OF ACCOUNTS

GAAP - Generally Accepted Accounting Principles -- refer to a common set of

accepted accounting principles, standards, and procedures (set by policy boards) that
companies and their accountants must follow when they compile their financial
statements.
PFRS – Philippine Financial Reporting Standard
 TWO TYPES OF INVENTORY SYSTEMS:

The PERIODIC and PERPETUAL inventory systems are different methods used to track the quantity of goods
on hand.

PERIODIC* PERPETUAL

• relies upon an occasional physical count of
the inventory to determine the ending
inventory balance and the cost of goods
sold.
• more sophisticated of the two, but it
requires much more record keeping to
maintain;
• keeps continual track of inventory balances.

COST OF GOODS SOLD

PURCHASES

PERIODIC PERPETUAL
PERIODIC PERPETUAL

• there is no account • are

entry at all in an continual • all purchases • inventory
accounting period updates to are recorded purchases are
the cost of into a recorded in
• is calculated in a goods sold purchases either the raw
lump sum at the account as asset materials
end of the each SALE is account, and inventory
accounting period, there are no account or
made.
by adding total individual merchandise
purchases to the inventory account
beginning records to (depending on
inventory, & which any the nature of
subtracting ending unit-count the purchase),
inventory -- means information while there is
it can be difficult to could be also a unit-
obtain a precise added. count entry into
cost of goods sold the individual
figure prior to the record that is
end of the kept for each
accounting period. inventory item.
 NORMAL BALANCES

When looking in the general ledger, the following is the debit/credit balance you would normally find
in the account:

Debit Credit

ASSETS + -

LIABILITIES - +

CAPITAL - +

DRAWING + -

INCOME - +

EXPENSES + -

ACCOUNT TYPE OVERVIEW – FIVE TYPES:

1. Assets: tangible & intangible items that the company owns that have value (cash, computer systems,
patents)
2. Liabilities: money that the company owes to others (mortgages, vehicle loans)
3. Equity: that portion of the total assets that the owners or stockholders of the company fully own; paid
for outright
4. Revenue or Income: money the company earns from its sales of products or services, interest and
dividends earned from marketable securities
5. Expenses: money the company spends to produce the goods or services that it sells (office supplies,
utilities, advertising)
 CYCLE - Financial Statement Reports:

1. General Journal

2. General Ledger

3. Trial Balance

4. Cost of Goods Sold*

5. Statement of Performance

6. Statement of Changes in Owner’s Equity

7. Statement of Financial Position

8. Statement of Cash Flow

9. Closing Entries

10.Post Closing Trial Balance