ACCOUNTING 101

Major Account Classifications

■ Balance Sheet Accounts

– Asset Accounts
– Liability Accounts
– Equity / Capital Accounts
■ Income Statement Accounts
– Revenue Accounts
– Expense Accounts
Asset
Accounts
Liability Accounts
Equity Accounts

290 Common Credit Amount invested by all the stockholders in the company, net of
Stock all drawings, in this type of share capital.
296 Retained Credit Accumulated income that is added to the equity/capital
Earnings
Major Account Classifications

■ Balance Sheet Accounts

– Asset Accounts
– Liability Accounts
– Equity / Capital Accounts
■ Income Statement Accounts
– Revenue Accounts
– Expense Accounts
Revenue Accounts

320 Sales Credit Amount earned from selling goods to the customers, either for
cash or credit.
331 Sales Debit Amounts of sales that are returned by the customers, and
Returns must be returned to the company’s inventory
and
Allowances
332 Sales Debit Amounts of discounts given to sales, thus deducted from
Discounts sales
Operating Expenses Accounts
Non-operating (Other) Income and
Expenses Accounts
Identify
For recording or not (Yes or No)
■ Purchased machinery for the company factory YES
■ Provided professional services to clients YES
■ Received a quotation from the supplier for new sales items NO
■ Paid personal electric bill from personal credit card NO
■ Received some money for the additional funding of the business/organization YES
■ Received an invoice for the production materials to be paid next month YES
■ Received cash for an order to an online customer YES
■ Found an office building and negotiated on the price NO
■ Paid demolition expenses of an old building on the land recently purchased YES
■ Received bank interest income from time deposits of the company YES
■ Lessor paid for the repairs and improvements of the building being rent out NO
■ Paid 1 month golf membership fee to work out things with a prospect client/investor YES
■ Purchased a car in installments for the branch manager YES
Identify
Asset, Liability, Equity, Income or Expense

■ Supplies Expense EXP

■ Payroll EXP
■ Computer set ASSE
■ Receivables from customers ASSE
■ Sales of merchandise T ■ Use of assets T
INC EXP
■ Land ASSE ■ Taxes and Permits paid EXP
■ Loan from a bank T ■ Accrued Income
LIAB ASSE
■ Cash Advances to employees ■ Owner’s withdrawal of capital T
ASSE EQUIT
T Y
■ Cash Investment from owners EQUIT ■ Inventory of merchandise ASSE
Y T
■ Gain from sale of properties INC ■ Professional fees paid in advanced ASSE
T
■ Cashier’s cash shortage ASSE ■ Office Security deposit ASSE
T T
■ Personal credit card expenses of ASSE ■ SS taxes collected/withheld from LIAB
employees T employees for remittance later on
Identify
Current or Non-current

■ Supplies C
■ Prepaid Rent C
■ Computer set N
■ Accounts Receivables C
■ Cash in Bank C
■ Building N
■ Land N ■ Equipment N
■ Loan from a bank C/N ■ Interest Payable C
■ Cash Advances to employees C ■ Unearned/Deferred Revenue N
■ Accounts Payables C ■ Inventory of merchandise C
■ Salary and Wages Payable C ■ Accrued taxes C
■ Cashier’s cash shortage C ■ Office Security deposit N
■ Machineries N ■ SS taxes collected/withheld from C
employees for remittance later on
Single vs Double-Entry Bookkeeping
■ Single-entry accounting
– Bookkeeping system in which transactions are entered once
– Ex. Cash Register / Cash Book
Date Particulars Cash In (Out)
April 1, 2020 Sold 20 dresses $ 100
April 1, 2020 Pay Shipping costs (10)

■ Double-entry accounting
– Bookkeeping system in which transactions are entered on two matching sides
(debit and credit) OR (‘giving’ account and ‘receiving’ account’)
Date Particulars Debit Credit
April 1, 2020 Sold 20 dresses Cash $100 Sales $100
April 1, 2020 Pay Shipping costs Expense $10 Cash $10
Accounting Equation BA L A N
Assets = Liabilities + Equity
CE
Assets – Liabilities = Equity SH E ET
Assets – Equity = Liabilities

Liabilities
Assets
Equity
DEBIT = CREDIT
T-account & Trial Balance
INPUT
Acct. 1 Acct. 2 R RO R !
E even with the
Errors
$xxx $xxx
use of Accounting
Software:
■ An entire transaction was
omitted/not recorded.
■ An entire transaction was
recorded twice.
■ An incorrect amount was
entered both in debit and
credit.
■ Incorrect account was used.
Identify Normal Balance
Debit or Credit

■ Supplies Expenses DR ■ Payroll Tax Payables CR

■ Furniture and Fixture DR ■ Accounts Receivables DR
■ Inventory DR ■ Depreciation Expense DR
■ Land DR ■ Taxes and Licenses DR
■ Loans Payable CR ■ Accrued Income DR
■ Cash Advances to employees DR ■ Goodwill DR
■ Stockholder’s Equity CR ■ Accumulated Depreciation CR
■ Gain from sale of properties CR
■ Professional Expenses DR
■ Cashier’s cash shortage DR
■ Security deposit DR
■ Advances from Customers CR
■ Bad Debts DR
■ Prepaid Rent DR
■ Investment Held for Sale DR
Identify Transaction
Debit or Credit

Transaction Account Title DR/CR

■ Performed services to customer ■ Service Revenue ■ Credit
■ Purchased supplies on cash ■ Cash ■ Credit
■ Interest payment for bank loan ■ Interest Expense ■ Debit
■ Bank Loan amortization ■ Loans Payable ■ Debit
■ Sold an item on credit ■ Sales ■ Credit
■ Paid payroll to employees ■ Payroll Expense ■ Debit
■ Collected payment from sale last week ■ Accounts Receivable ■ Credit
■ Leased a building ■ Rent Expense ■ Debit
Identify Debit and Credit
Paid utilities for the month Cash Accounts Payable Utilities Expense Prepaid
Expense
Sold products on account Cash Accounts Receivable Sales Service
Income
Owner invested more capital Cash Investment Capital Loan
Paid insurance for the next 12 months Cash Accounts Prepaid Insurance Insurance Expense
Payable
Received advanced payment from customer Cash Accounts Service Unearned
Payable Income Income
Received monthly interest amount to be paid next Cash Accounts Interest Expense Interest Payable
month
Payable
Paid employees’ social security to IRS Cash SS Tax Payable Payroll Tax Payroll
Expense
Expense
Purchased an equipment on account Cash Accounts Equipment Supplies
Payable
Paid Salaries and wages to employees Cash Accounts Salaries Service
Payable Expense Income
Accounting Process Flow
Transaction
Analysis

Journal Entries (to

Closing the Books
Journal Books)

Posting (to General

Financial Statements and Subsidiary
Ledgers)

Adjusting Entries Trial Balance