Chapter 4:

Basic Bookkeeping Practices,

Tools and Methodologies
• It is 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.

• It provides the information from which

accounts are prepared. It is a distinct
process, that occurs within the broader
scope of accounting.
• It is a list of financial accounts set up, usually by an accountant, for an
organization, and available for use by the bookkeeper for recording
transactions in the organization's general ledger.
BASIC ACCOUNT TITLES

Factor 1: Possessions
ASSETS

Cash on Hand – money that has not yet been deposited in a depository bank,
and are usually placed in a cash safe or vault while inside the business premises.

Cash in Bank – money that has been physically transferred to a depository bank
to ensure better protection against theft and misuse.

Petty Cash Fund– refers to the money that is maintained as a small fund, and
used for minor and frequently incurred expenses.
Factor 1: Possessions
ASSETS

Merchandise Inventory – these are the goods kept as stock inventory and are intended to be
sold by a business entity.

Accounts receivable -Trade – the amount of goods purchased by a customer on account or

credit terms.

Office Supplies on Hand – or Supplies on Hand which are used for daily operations of the
business.

Other Assets – Prepaid Expenses – expenditures that require an advance payment but are
not treated as outright expenses. (interest on loan, insurance, rental payments)

Other Assets – Advance Rent/Deposit – paid by the business entities that require a specific
amount of payment considered as deposit before a facility, utility, or service will be rendered.
Factor 1: Possessions
ASSETS

Non-Current Assets– assets that will benefit the business entity for more than a year usually
classified as non-current accounts. (patents, copyrights, computer software)

Furniture and Fixtures– classified as fixed assets, which may be immovable or movable.
(appliances, furnishings, fittings, lightings, display racks, and shelves).

Accumulated Depreciation – Furniture and Fixtures – this account represents the cost of
wear and tear of the furniture, fixtures, and equipment installed in the premises, which are
periodically recognized and accumulated as a contra-asset account. It pertains to the
account’s credit balance and the reducing effect against the asset to which it corresponds.

Office Equipment – these are fixed assets comprising office apparatus, accessories, tools,
devices, or gadgets installed in the place of business for administrative purposes, in order to
expedite and increase efficiency in the workplace.
Factor 1: Possessions
ASSETS

Accumulated Depreciation - Office Equipment – this is the contra-asset account that applies
to office equipment account, which summarizes the accumulated costs of wear and tear that
are periodically recognized as expenses.

Transportation Equipment – vehicles categorized under this account are those being used as
part of the business operations, to facilitate the transport of goods or services and of
company personnel who are tasked to carry out official duties and functions.
Factor 2: Obligations
LIABILITIES

Withholding Tax Payable – taxes that are due to the BIR, representing taxes deducted from
salaries of the employees and income of contractors hired by the business entity.

SSS/Philhealth/Pag-Ibig Payable – mandatory deductions made against said salaries

VAT or Percentage Tax Payable– taxes imposed on both buyers and sellers in connection with
the purchase of goods or services.

Accounts Payable - Trade – account is used for transactions pertaining to goods bought as
stock inventory, in which actual payment is deferred at some future date but only for a short
period.

Loans or Notes Payable – account used pertaining to money borrowed from banks or
financing companies, which are considered long-term if the period covered lasts for more
than a year.
Factor 2: Obligations
LIABILITIES

Car Financing – loans that are typically granted by banks or financing institutions through the
assistance of dealers as the latter’s way of securing payment for cash purchased by customers.

Expenses (Supplies, Utilities, Rent) – cost of supplies or services used

Repair Maintenance– expenses for repairing or maintaining the buildings, machineries, and
equipment of the business.

Interest Expense – the amount added to the principal money obligation.

Accrued Expenses Payable – utility consumption for the month like electricity, water, and
communication are generally due and payable the following moth. Hence, the necessity of
setting up a payable account in order to record the expense in the same month that the utility
was used or consumed.
Factor 2: Obligations
LIABILITIES

Accrued Percentage Tax Payable – percentage tax is the mandatory tax paid based on the
monthly gross receipts of a Non-Vat business entity whose annual gross income is not
expected to exceed ₱3M.

Accounts Payable – Trade – his liability account represents the entity’s purchases on account
or by way of short-term credit arrangements. The liability amount is based on the cost of
goods purchased on credit; any related interest or penalty charges are recorded as interest
and penalty expenses.

Long-Term Liabilities – this represent loans or borrowings granted by banks or financial

institutions with terms that exceed one year.

Loans Payable – funds borrowed from the bank or financial institutions as well as the periodic
amortization payments made to reduce the debt are summarized under the loans payable
account.
Factor 3: Values
CAPITAL

(Name of Owner), Capital – account title to denote the owner’s total capital contributions.

(Name of Owner), Drawings – account title is used to separate the personal expenses of the
single proprietor, in case the owner made used of the business funds.

Net Income or Loss– this represents the net effect of all the income and expense accounts
after being summarized in the Profit and Loss summary.
Why Accounting is Important?
General Journal
Accounting entries are recorded in chronological order, to provide
the details of every relevant transaction.
General Ledger
All journal entries are posted in this book, often referred to as the
“book of Accounts”, since it contains the compilation of accounts
being used to monitor the balances of the assets, liabilities, capital,
income, and expenses of the business entity.
Cash Receipt Book (CRB)
- This book is often used in a manual system of accounting, in which multiple
cash receipt transactions during the day are listed individually.
- Recorded according to the numerical sequence of the receipts issued to
acknowledge the amount of cash received.
Sales Book
- Small business retailers who operates without the use of
computerized business machines maintain a sales book for
monitoring goods sold or the services rendered during the day.
Check Disbursement Book (CDB)
- This is the counterpart of the Cash Receipt Books in a manual
accounting system.
- The expenses recorded in this book are those which involve
check payments as means to monitor cash-in-bank
disbursements.
Petty Cash Book (PCB)
- This book is maintained to monitor petty cash fund, in line with
the funds use for defraying minor and recurring business expenses.
- The purpose of this is to avoid the misuse of cash that is on hand.
Check Register
- This book is used to control issuances of checks.
- Information contained in this book is vital for bank reconciliation
procedures, and may not necessarily be included as basis for
accounting entries.
Subsidiary Ledger
Provide a system of accounting for individual accounts which
comprise a particular general ledger account.
T-Account
This is another bookkeeping tool used for analyzing the effect of
multiple journal entries in a particular GL account balance.
ACCOUNTING
A service to business whose functions are:
• Recording business transactions
• Classifying and summarizing the data
• Interpreting the results of the transactions
BOOKKEEPING
Recording of business transactions in chronological
order.
BOOKKEEPING VALUES
ASSETS
resources owned by a company and which have future economic value that can
be measured and can be expressed in money.

CASH, CLAIMS RECEIVABLE, LAND, BUILDING, FURNITURE AND FIXTURES,

EQUIPMENTS

EQUITIES
payables of the business, debts or obligations

a. LIABILITIES – owing to outsiders and non-owners

b. CAPITAL PROPRIETORSHIP – owing to the owner/s
Debit is an accounting entry that either increases an
asset or expense account, or decreases a liability or
equity account. It is positioned to the left in an
accounting entry.

Credit is an accounting entry that either increases a

liability or equity account, or decreases an asset or
expense account.
Determining the Debit and Credit entries

Fundamental accounting equation, the normal balances of the accounting elements:

• Assets = Debit
• Liabilities = Credit
• Capital = Credit

1. To increase an asset account, a debit entry will be used. Conversely, if the transaction
will cause the balance of an asset account to decrease, a credit entry will be used.
2. To increase a liability and a capital account, a credit entry will be used. Conversely, a
debit entry will have a decreasing effect on a liability or a capital account.
3. Transactions pertaining to income and expenses will cause the capital account to
increase or decrease, depending on the type of transaction.

Assets = Liabilities + (Owner’s Capital + Income – Expenses – Capital Drawings)