Arlance S.

Delmo
H11C
I. Bookkeeping (part 1)
BOOKKEEPING
- Bookkeeping refers to the chronological writing or recording of business transaction and events in the
books of accounts for the first time. The two books of accounts are the journal and the ledger. All
business transactions are recorded first in the journal and later transferred to ledger.
- Refers to the recording of business transactions in the books of the business
JOURNAL
- Is the book of original entry. It is where all business transactions are chronologically recorded for the
first time.
LEDGER
- Another books of account used to record business transactions and events. Consider as the book of final
entry. Also known as the T-account.
TRIAL BALANCE
- The listing of the debit and credit balances of the accounts from the general ledger.
- Is prepared to test the accuracy of the ledger.
- Balance Method is the most popular method of preparing a trial balance.
JOURNAL
- A sample format of a two-column general journal.

GUIDELINES IN USING THE GENERAL JOURNAL

Date Column Shows the date of the occurrence of the transaction. The year and month are not
rewritten for every entry unless they have changed, or a new page is needed.
Particulars It shows the account debited and credited as well as a brief explanation of the
transaction. The debit account is entered at the extreme left of the first line, credit
account is entered slightly indented on the next line. A brief explanation of the
transaction is entered on the next line slightly indented from the credit account.
Posting References It is used when the entries are posted, that is, until the amount are transferred to the
related ledger account.
Debit Columns It is the first money column where the amount of the debit account is entered.
Credit Columns It is the second money columns where the amount of credit account is entered.
PROCEDURES WHEN USING THE TWO-COLUMN GENERAL JOURNAL
1. Labeling the journal
2. Writing the date
3. Writing the debit and credit account titles
4. Writing the amount
ACCOUNT TITLES
- The recording of business transactions involves the use of account titles. The account titles are grouped
into five categories technically referred to as the accounting elements:
1. Asset
2. Liabilities
3. Capital (Owner’s Equity) Original and additional investment of the owner
4. Income (Revenue)
5. Expense
1. ASSET ACCOUNT TITLES
1. Cash
2. Accounts receivable
3. Notes Receivable
4. Supplies on hand
5. Unused factory supplies
6. Inventory
7. Equipment
8. Furniture and fixtures
2. LIABILITY ACCOUNT TITLES
1. Accounts Payable
2. Notes Payable
3. Utilities Payable
4. Salaries Payable
3. CAPITAL ACCOUNT TITLES
1. Capital
2. Drawing
4. INCOME ACCOUNT TITLES
1. Service Income
2. Rental Income
3. Sales
5. EXPENSE ACCOUNT TITLES
1. Salaries and wages
2. Supplies Expense
3. Taxes and License
4. Utilities expense
5. Traveling Expense
6. Rent Expense
Resources controlled b the business or anything of value that is owned by
the business
Obligation of the business arising from past transaction
Earnings arising from the main line of operations of the business. Result
from selling or rendering of services
Costs incurred by the business in generating revenues
It describes money, either in paper or in coins
It describes collectibles from customers who made sales transactions on
credit.
It describes collectibles that are supported with promissory notes.
It describes unused office or store supplies
Unutilized manufacturing supplies
It describes unsold goods that are intended for sale.
Tools and equipment like calculators, computers, or any equipment directly
related to the production of goods.
Assets like chair, tables, and display cases.
It describes the financial obligations arising from goods purchased are
service received.
It describes the financial obligations supported with notes
It describes the unpaid obligations on light and water consumptions.
It describes the unpaid salaries of the workers.
It describes the original and additional investment of the owner
It describes the temporary withdrawal of capital by the owner
It describes general services rendered.
It describes the income arising from least or rent of property
It describes the sale of goods or products to the consumers
It describes the expenses on payment or salaries.
It describes the expenses on store supplies
It describes the expenses on taxes, permits, fees, and licenses
It describes the expenses on light and water
It describes the expenses on transportation on fare of personnel
It describes the expenses for rent of property

BUSINESS DOCUMENTS
- All entries appearing in the general journal are fully supported with business documents. Before any
recording process takes place, all the supporting documents must be arranged chronologically.
1. Purchase Order It is an official business document issued by the buyer to the seller of goods
2. Invoice It is a commercial business document issued by the seller to buyer
3. Official Receipt It is a commercial document that indicates payment or receipt of cash
4. Delivery Receipt It is a document that serves as an evidence that the goods or services are
received
 5. Receiving Report It is a document used within the business upon receipt of the goods shipped
by the courier or forwarder
6. Check It is a document that orders a payment of money from the current account
maintained in the bank
7. Voucher It is an internal business document that authorizes the incurrence or
payment of obligations.
Bookkeeping or recordkeeping is performed every day. At the end of the month, all the transactions will be
grouped based on the nature or characteristics of the account. This accounting activity is technically called
CLASSIFYING. It refers to the group of similar business transactions and events.
II. Bookkeeping (part 2)
LEDGER
- The Ledger is another book of accounts used to record business transactions and events. It is considered
as the book of final entry. Information in the journal are transferred to the ledger through the process of
posting.
CLASSIFYNG LEDGER POSTING FOOTING THE ACCOUNT

- The ledger appears like a capital letter T. It has two sides, namely the debit side and the credit side. Both
sides, however, consist of the same columns. The account title of the ledger is written at the center. On
the rightmost side is the page number of the ledger. Each account title must have a separate ledger.
POSTING
- The process of transferring the same information from the journal to the ledger.

- The different arrows from the illustrations in the previous page point out the process of posting and
cross-referencing. The dates and the amounts are transferred to the proper side of the ledger depending
upon their positions in the journal.
 - If the dates and amounts are debited in the journal, they are transferred to the debit side of the ledger. If
the information is credited in the journal, it is transferred to the credit side of the ledger
After all the entries have been posted in the ledger, the next bookkeeping procedure is to foot the account.
FOOTING THE ACCOUNT
- The process of adding the debit and the credit money columns of the ledger and finding their balances.
1. If the debit total is higher than the credit total, their difference is placed in the Particulars column of the
debit side.
2. If the credit total is bigger than the debit total, their difference is placed in the particular’s column of the
credit side.
3. If there is only one entry on any side of an account in the ledger, no footing is done and the entry is
simply left open.

- It can be observed from the illustration in the previous page that the difference between debit and credit
(95,000 – 29, 300) is placed on the side that has the grater amount. In case the credit amount is higher
than the debit amount, the difference will be placed on the credit side. The amount representing the
difference will be used in the next bookkeeping procedure.

The following is a review of the bookkeeping procedures that have already been discussed at this point:
1. Arrange and file in chronological order all the business documents that serves as the evidence of the
transactions. The sources of the entries in the general journal are the different business documents.
2. Record daily the business transactions in the two-column general journal by observing the chronological
occurrence of the events as reflected in the business documents and the principle of debit and credit,
which dictates that for every value received there must be a corresponding value parted with equal
amount.
3. Transfer or post al the entries in the general journal to the ledger at the end of the month without
changing any information. This means that all information in the ledger are sourced from the general
journal.
4. After the posting process has been completed, foot or add the amount of the debit and credit in the
ledger in the ledger by observing the principles of footing.

TRIAL BALANCE
- After all the accounts in the ledger have been added and the balance have been computed, the next
bookkeeping procedure is to prepare the trial balance.
- It is the listing of the debit and credit balances of account from the general ledger
- It will be the basis in preparing the financial statement
- The total of the Debit column and Credit column should be balance or identical
DEBIT AND CREDIT RULES
Debit Credit
An accounting entry that: An accounting entry that:
- Increases an asset account - Decreases an asset account
- Increases an expense account - Decreases an expense account
- Decreases a liability account - Increases a liability account
- Decreases a revenue account - Increases a revenue account
Remember the accounts to be debited are the A-D-E and the accounts to be credited are the L-C-R
Debit Credit
A-D-E L-C-R
A – Asset L - Liabilities
D – Drawing C - Capital
E - Expense R - Revenue
PURPOSES OF TRIAL BALANCE:
1. To prove the equality of debit credit
2. To determine the nominal accounts to be closed
3. To serve as basis for making draft financial

HEADING
- Normally has three lines; business name, title and date of the trial
balance
BODY
- Presents the different titles and their balances
TOTAL
- The total of the Debit column and Credit column should be equal
or identical and “double ruled”

Once the trial balance is not balanced, possible errors could have been committed in the bookkeeping process,
such as the following.
1. Erroneous recording in the journal
2. Erroneous posting the ledger
3. Mathematical Mistakes
4. Omission
NORMAL BALANCE OF AN ACOUNT
(Trial Balance Guideline)
TRIAL BALANCE
DEBIT CREDIT
Assets Liabilities
+ Drawing + Capital
+ Expense + Revenue
TOTAL DEBIT TOTAL CREDIT

BOOKKEEPING PROCESSES PRIOR TO THE PREPARATION OF FINANCIAL STATEMENTS

Step 1 Gathering & arranging the business document
Step 2 Recording the transaction in the journal
Step 3 Posting the entries in the journal to the ledger
Step 4 Preparing the preliminary trial balance
 III. Income Statement & Statement of Changes in Equity
FINANCIAL STATEMENTS
- Financial statements represent a proper and formal record of the financial activities of an organization.
- These are written reports that evaluate the financial stability, performance and liquidity of a company.
MAJOR FINANCIAL STATEMENTS
1. Income Statements (IS)
2. Statement of Changes in Equity (SCE)
3. Statement of Financial Position (SFP) or Balance Sheet

INCOME STATEMENTS (IS)

- After the trial balance, the income statement is prepared next. It shows the financial performance of the
business for a given period of time.
- Shows how much money a business earned and spent over any given period, its bottom-line figure is
either net profit of loss.
- “given period” is also an accounting period in which the business operates and prepare their Financial
Statement. It is divided into either monthly, quarterly, semi-annually, or yearly.
It is measured by Total Revenue – Total Expense = Net Income/Loss.
INCOME STATEMENT
Total Revenue
(less) Total Expense
Net Income/ Net Loss

INCOME STATEMENT (Profit and Loss Statement)

- It reports three basic elements:
o Revenue, expenses, and profit or loss
Net Profit - is a calculated number equal to the difference between revenue and
expenses.
- Revenue-Expenses=Net Income (net loss)

Revenue/Income/Sales - are the income generated by the business from its clients.
Other Income - Can be generated from interest earned from savings account.
Expenses - Are the cost incurred during business operation.
Examples:
- Salaries Expense
- Tac and License Expense
- Miscellaneous Expense

- The income statement has two major parts, namely, the heading and the body.

- The heading contains information on the name of the business, the name of the financial statement, and
the date (for the year ended). The body is composed of the revenue, expenses, and net income or net loss
of the business during a given period.

- The term net income represents the excess of the gross income or revenue against the expenses, while
the term net loss refers to the excess of the expenses against the revenue or income during the period.
INCOME STATEMENT SAMPLE
HEADING: Take note of the title format
BODY: We have the income or revenue
section and expenses section.
All expenses are arranged according to
magnitude (from highest to lowest
amount.) Miscellaneous expense is
always at the bottom no matter how
much the amount is.
Total Expenses should be enclosed in a
parenthesis to indicate that it is to be
subtracted to the total revenue.
Always put the peso sign and double rule
(two underlines) the total balance.
Enclose the amount in parenthesis if it is
a Net Loss

The basis for preparing the Income Statement is the Trial Balance. All the accounts and amounts appearing in
the trial balance, as emphasized, come from the ledger.

On the next page, based on the given trial balance of Elfren’s Billiard Shop, see how the income statement is
prepared.

STATEMENT OF CHANGES IN EQUITY(SCE)

- After the Income Statement is prepared, the statement of changes in Equity is next. It represents the
summary of changes that occurred in the owner’s equity in a given period of time. It is composed of the
Net Income/ Loss, Drawing and Capital.
SAMPLE OF CHANGES IN EQUITY SAMPLE

ELEMENTS OF THE OWNER’S EQUITY

Capital Amount invested in the business by the owner
Withdrawal When the owner withdraws cash or other assets from the business for personal use.
STATEMENT OF CHANGES IN OWNER’S EQUITY GUIDELINE/FORMULA
Statement of O.E.
Initial Capital
(add) Net Income
= Sub-total
(less) Drawing
Ending Capital
The basis for preparing the Statement of Changes in Equity is Trial Balance and income statement.
On the next page, based on the given trial balance and income statement of Elfren’s Billiard Shop, see how the
statement of Changes is prepared.
STATEMENT OF CHANGES IN EQUITY
Presents the summary of the changes that occurred in the owner’s equity in a given period of time.

STATEMENT OF CHANGES IN EQUITY

Things to remember:
- If the result of income statement is “Net Income,” the amount should be added to the original beginning
capital.
- If the result is “Net Loss,” the amount should be subtracted to the beginning capital, as well as the
Owner’s drawing
- Owner’s drawing is also subtracted after the result of net income/loss operation.
- Double Rule the final amount (Capital Ending)

STATEMENT OF FINANCIAL POSITION (SFP)

- After the Statement of Changes in Equity is prepared the statement of Financial Position is next.
- Otherwise known as the “balance Sheet.” It informs the users of the financial condition of the business
at a given date.
- It composed of Assets, Liabilities, and Owner’s Equity (Capital).
STATEMENT OF FINANCIAL POSITION (BALANCE SHEET)
- Assets = Liabilities + Owner’s Equity
ELEMENTS OF STATEMENT OF FINANCIAL POSITION
Asset - Properties owned by the business, possessing a monetary value, or the resources of
the business.
Liabilities - Economic obligation of the business. It is arranged according to maturity of the
payable.
Owner’s Equity - The claim of the owner over the asset after creditors have been satisfied.

HOW ARE THE ELEMENTS ARRANGED IN THE SFP

- Assets in the SFP are arrange according to “liquidity” (conversion of Assets into cash), cash being the
most liquid asset, comes first.
- While Non-current Asset are arranged according to its value, Land being the first, then Equipment,
Furniture and Fixtures.
- Liabilities are arranged according to the date of maturity. The shortest date of maturity should be listed
first.
SAMPLE OF STATEMENT OF FINANCIAL POSITION (BALANCE SHEET)

DON’T FORGET:
- Total assets should always be equal with total liabilities and owner’s equity (capital)
- Always put the peso sign and double rule the total balance.
The basis for the preparation of the Statement of Financial Position (Balance Sheet) is the trial balance and
statement of changes in equity. On the next page, based on the given trial balance of Elfren’s Billiard Shop and
the results from statement of changes in equity, see how the Statement of Financial Position (Balance Sheet) is
prepared.

REMEMBER THE BASIC ACCOUNTING EQUATION:

Assets = Liabilities + Capital

The total of Assets should always be equal to the total of Liability + Capital.
In all instances, the total assets of the business must be equal to the total liabilities and capital.
The result from statement of changes in equity.