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Why is bookkeeping important?

 Ease in making daily business decision

 Making business evaluations
 Proper reporting to investors
 Managing cash flows
 Effective tax compliance

Why do all businesses need to keep accounting records?

 They keep track of where money comes from and how it is spent.
 They are required by law.
 They are used as the basis for financial statement


What is Bookkeeping

 Mechanical task involving the collection of basic financial data. The data are first entered
in the accounting records or the books of accounts, and then extracted, classified, and
summarized in the form of income statement, balance sheet and cash flows statement.
 Bookkeeping 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.

Bookkeeping Process

1. Prepare Source Documents – A source document is the beginning of the entire business
bookkeeping process. This is the item (invoice or bill) for which the official ledger book
entry is based. These detailed documents must be precise in order to effectively keep the
books.
2. Determine Financial Effects– Every single transaction, including all invoices, bills and
expenses, affect the business. Even if the effect is small, it still must be recorded. The
business bookkeeping specialist must decide what is relevant about a transaction as well
as how and where it should be recorded.
3. Make Journal Entries – In business bookkeeping, a journal is where each transaction is
recorded. The transaction information also stays in the original source document and is
noted on each of the accounts that it affects.
4. Handle End-of-Period Procedures – In business bookkeeping, you must add up and
prepare each of the records for accounting reports, financial statements and tax returns.
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5. Close the Books – At the end of each year, the bookkeeper must handle all duties
associated with ending the fiscal year and begin preparing for the next fiscal year. This
means preparing the books so you, or the necessary personnel, can create end of year
reports and future projections.

ACCOUNTING CYCLE/PROCESS

1. Analyzing and Classify Data about an Economic Event.

2. Journalizing the transaction.

3. Posting from the Journals to the General Ledger.

use of T-accounts

4. Preparing the Unadjusted Trial Balance.

5. Recording Adjusting Entries.

Deferral - expense already paid but not yet incurred

Accrual - expense already incurred but not yet paid

6. Preparing the Adjusted Trial Balance.

7. Preparing Financial Statements.

8. Recording Closing Entries.

9. Preparing a Closing Trial Balance.

 Close revenue accounts

 Close expense accounts
 Close income summary accounts
 Close withdrawal accounts
10. Recording Reversing Entries.

 a journal entry which is an exact opposite of a related adjusting entry made at the end
of the period.

 a reversing entry should be made for any adjusting entry that increased an asset or
liability account. Therefore, all accruals are reversed.
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FINANCIAL STATEMENTS

(or financial report) is a formal record of the financial activities and position of a business, person,
or other entity.

 A Balance Sheet or Statement of Financial Position, reports on a company's assts,

liabilities, and owner's equity at a given point in time.
 An Income Statement or Statement of Comprehensive Income, reports on a company's
income, expenses , and profits over a period of time. A profit and loss statement provides
information on the operation of the enterprise. These include sales and the various
expenses incurred during the stated period.
 A Statement of Changes in Equity or Statement of Retained Earnings, reports on the
changes in equity of the company during the stated period.
 A Statement of Cashflow reports on a company's cash flow activities, particularly its
operating, investing and financing activities

ELEMENTS OF FINANCIAL STATEMENTS

Financial position/Balance Sheet

 Assets - are the resources control by the entity as the result of past events and from which
the future economic benefits are expected to flow the entity.
o cash, cash equivalents, notes receivable, accounts receivable, inventories, prepaid
expenses, property, plant & equipment, investments, intangible assets, and other
assets.
 Liabilities - are the present obligations arising from the past events, the settlement of
which is expected to result in an outflow from entity resources embodying economic
benefit.
o Accounts payable, notes payable, accrued liabilities, unearned revenues,
mortgage payable, bonds payable, and other debts of the enterprise.
 Equity - is the residual interest in the assets of the entity after deducting all its liabilities.

Performance

 Revenue - increase in the economic benefits during the accounting period in the form of
inflows or enhancements of assets or decrease of liabilities that result in increases in
equity, other than those relating to contributions from equity participants.
o sales revenue from selling of goods or rendering of services, interest incomes from
banks deposits, dividend received from equity investments
o There are two accounting principle that use to records and recognize revenues:
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Cash basis and Accrual basis. Cash basis, income is recognized at the time cash
are received while accrual basis, income recognizes at the time risks and reward
are transferred from sellers to buyers.

 Expenses - decreases in economic benefits during the accounting period in the form of
outflows or depreciation of assets or incurred of liabilities that result in decreases in
equity, other than those relating to distributions to equity participants.
 Salaries expenses, Depreciation, Interest Expenses, Tax expenses, Utilities expenses,
Transportation Cost, Marketing Expenses, Rental Expenses, Repair and maintenance,
Internet Fee, Telephone fee

THE ACCOUNT

 Basic summary of an accounting is the account.

 Simplest form of an account, is a T account.

THE ACCOUNTING EQUATION

ASSETS = LIABILITIES + OWNER’S EQUITY

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DEBITS AND CREDITS - THE DOUBLE ENTRY SYSTEM

DEBIT CREDIT

(Means “the left side”) (Means “the right side”)

VALUE RECEIVED VALUE PARTED WITH

“For every Debit, there is an equal and opposite Credit

recorded in the accounting records’

SINGLE ENTRY SYSTEM

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PRESTIGE, INC
CHART OF ACCOUNTS
Balance Sheet Accounts Income Statement Accounts

Assets Income

110 Cash 410 Consulting Revenues

120 Accounts receivable 420 Tutorial Revenues

130 Prepaid Supplies

140 Prepaid Rent Expenses

150 Prepaid Insurance 510 Salaries Expense

160 Service Vehicle 520 Supplies Expense

165 Accumulated Depreciation 530 Rent Expense

170 Office Equipment 540 Insurance Expense

175 Accumulated Depreciation 550 Utilities Expense

Liabilities 560 Depreciation Expense -

210 Notes Payable Service Vehicle

220 Accounts Payable 570 Depreciation Expense -

230 Salaries Payable Office Equipment

240 Utilities Payable 580 Interest Expense

250 Interest Payable

260 Unearned Tutorial Revenues

Owner's Equity

310 Prestige, Capital

320 Prestige, Withdrawal

330 Income Summary

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EXERCISE 1: Elements of Financial Statements

Assets Liabilities Owner's Equity Income Expense Profit(Loss)

a. 760,000 360,000 a. 840,000 ? 360,000

b. 860,000 ? 592,000 b. 2,400,000 ? 540,000

c. ? 108,000 760,000 c. 1,300,000 860000 ?

d. 626,600 376,240 ? d. ? 2,000,000 720,000

e. ? 800,000 (100000) e. ? 1,800,000 (400,000)

EXERCISE 2: Recording Transactions / Journal Entries /Posting to Ledgers/T-accounts

Nelson Daganta formed the Liceo Sign Company on Oct. 1, 2016. He deposited P250000 in GE
Money Bank under the name of the new business entity. During the month of October 2016,
the following transactions occurred:

Oct. 2 Acquired a service vehicle in the amount of P195,000 on account.

3 Acquired supplies for cash, P57,000

9 Received P87,500 cash for signs painted

10 Paid the month's rent, P25,000

11 Painted signs for Cagayan Company on account, P170,000

12 Paid P55,000 on account from Oct. 2

16 Withdrew P25,000 for personal use

23 Collected P35,000 from Cagayan Company

27 Paid salaries of P57,000 for the month

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30 Paid Bayantel P7,500 for communication services for the month

31 Paid bill From AdAsia for P5,500 of Advertising for the month

Required:

Establish the following accounts in a financial transaction worksheet: Cash, Accounts receivable,
Supplies, Service vehicle, Accounts payable, Salaries expense, Rent expense, Telephone
expense,Advertising expense, Services revenue, Daganta, Withdrawal, && Daganta, Capital

EXERCISE 4: Preparing Adjusting Entries and Adjusted Trial Balance

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a. On Nov. 1, 2016, Rialubin paid Juanita Rabena Realtors P360,000 for six months' rent on the
office building commencing that date.

b. Office Supplies on hand at Dec. 31, 2016 amounted to P27,000.

c. Depreciation expense for the furniture amounted to P75,000 for the year.

d. At Dec. 31, 2016, P105,000 salaries have accrued.

e. The 900,000 note payable was issued on Oct. 1, 2016. It will be repaid in 12months together
with interest at an annual rate of 24%.

Required: Prepare adjusting entries, prepare adjusted trial balance, and prepare financial
statements,
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COMPREHENSIVE PROBLEM: PRESTIGE INC.

Transactions:

DEC 1 Invested P150,000 in cash to start the business.

DEC1 Rented office space and paid P60,000 one-year rent in advance.

DEC 2 Issued a promissory note for a P210,000 loan from Metrobank. This availment will be
used for the acquisition of a service vehicle. The note carries a 20% interest per annum.

DEC 3 Hired an assistant and an account executive each with a P10,000 monthly salary. No
entry needed at this point.

DEC 4 Acquired service vehicle for P420,000 cash.

DEC 4 Paid insular life P144,000 for a one-year comprehensive insurance coverage on the
service vehicle.

DEC 5 Acquired office equipment from Fair and Square Depot for P60,000; paying P15,000 in
cash and the balance next month.

DEC 6 Purchased supplies on account, P18,000

DEC 8 Paid supplies P10,000 on the amount owed.

DEC 10 Rendered consulting services for cash, P360,000

DEC 15 Paid salaries.

DEC 18 Received P20000 advance fees for tutorial services.

DEC 19 Tutorial services rendered on account, P52,000.

DEC 19 Prestige withdraw P14,000 for personal use.

DEC 22 Received telephone bill, P3,400.

DEC 25 Received P12,000 from tutorial services rendered on account billed last Dec19.

DEC 29 Paid salaries.

DEC 29 Settled the electricity bill of P10,500 for the month.

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Adjustments:

1. Prestige paid one-year rent in advance. A portion of the asset expires and becomes an
expense day by day. By December 30, one month of the asset had expired, and should
be treated as an expense.
2. Prestige acquired a one-year insurance coverage on the service vehicle. A part of the
asset had also expired by December 30.
3. Prestige makes a careful physical inventory of the supplies. The inventory count showed
that the supplies costing P15,000 are still on hand by December 30.
4. Prestige estimated that the service vehicle, which was bought on December 4, will last
for seven years and with a salvage value of P84,000. Prestige uses the straight-line
method of depreciation.
5. The office equipment that was acquired December 5 will have a useful life of five years
and will be useless at that time.
6. On December 18, prestige received P20,000 advance fees for tutorial. By December 30,
amount of P4,000 tutorial services has been realized.
7. On December 2, Prestige borrowed P210,000 from Metrobank and issued a promissory
note that carried a 20% interest per annum. Record the interest incurred.

Required: Prepare Journal Entries, Adjusting Entries, Worksheet dated December 30, 2017
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Rialubin Travel Agency

Income Statement
December 31, 201X
Revenues

Travel Revenues

Total

Expenses

Salaries Expense

Rent Expense

Office Supplies Expense

Depreciation Expense

Interest Expense

Total

Profit
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Rialubin Travel Agency

Statement of Changes In Equity
December 31, 201X

Rialubin, Owner's Equity, beg balance

Add: Addition Investments

Profit

Total

Less: Withdrawals

Rialubin, Owner's Equity, end balance

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Rialubin Travel Agency

Statement of Financial Position
December 31, 201X

Assets
Cash
Accounts Receivable
Prepaid Rent
Office Supplies
Furniture
Less: Accumulated Depreciation

Total Assets
Liabilities
Notes Payable
Accounts Payable
Salaries Payable
Interest Payable
Total Liabilities

Owner's Equity
Rialubin,Capital

Total Liabilities and Owner's Equity

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Rialubin Travel Agency

Statement of Cash Flow
December 31, 2016

Operating Activities

Cash Inflows
Xx
Xx

Cash Outflows
Xx
Xx

Total Cash Flow from Operating Activities xxxx

Investing Activities

Cash Inflows
Xx
Xx

Cash Outflows
Xx
Xx

Total Cash Flow from Investing Activities xxxx

Financing Activities

Cash Inflows
Xx
Xx

Cash Outflows
Xx
Xx

Total Cash Flow from Financing Actvities xxxxx

TOTAL CASH BALANCE XXXXXXX