I LOVE ACCOUNTING:

A Webinar Series on the Basic Bookkeeping

Session 1 - Understanding the Concepts of
Basic Bookkeeping/Accounting
JUCARLO L. GERMINAL, CPA, CTT, MBA
Objectives
Specific Objectives of the Program:
Gain theoretical and practical understanding on basic bookkeeping

Learning Outcomes:
1. Obtain an understanding of the purpose of bookkeeping and accounting in business
2. Obtain a full understanding of General Accounting Theories including the Basic Accounting
terms, Accounting process and Financial Statements
3. Comprehend and analyze the four Financial Statements (Balance Sheet, Income
Statement, Cash Flow Statement, and Statement of Changes in Equity) through special ratios and
measurements.
Outline of Discussion
1. Introductory Principles

2. Journalize Transactions

3. Post Transactions

4. Prepare Trial Balance

5. Prepare Financial Reports

6. Review Internal Control System

7. Financial Ratios
What is Accounting?
Accounting is a service activity. It’s function is to provide quantitative information
primarily financial in nature, about economic entities that is intended to be useful in
making economic decisions.
Source: Accounting Standards Council

Accounting is the process of identifying, measuring and communicating economic

information to permit informed judgements and decisions by users of the information.
Source: American Accounting Association

Accounting is the art of recording, classifying and summarizing in significant manner

and in terms of money, transaction and events which are, in part of a least, of aa
financial character, and interpreting the results thereof.
Source: American Institute of Certified Public Accountants
Role of Accounting in Business
1. Recording
– record and analyze business transactions.

2. Reporting
– communicate financial information to all interested parties.

3. Analyzing
– help the owners or managers make decisions.
What is Bookkeeping?
Bookkeeping is the recording of all financial transactions undertaken by
a business (or an individual). A bookkeeper (or book-keeper), sometimes
called an accounting clerk, is a person who keeps the books of an
organization. The organization might be a business, a charity or even a
local sports club.

Source: Training Regulations of Bookkeeping NC III: Definition of Terms

Forms of Business Organization
1. Sole Proprietorship – owned and operated by a single individual called
proprietor

2. Partnership – owned by two or more persons called partners

3. Corporation – equity is divided into shares of stock and is created by

operation of law (owners are called shareholders)

4. Cooperative – equity is divided into members’ interest, created by

operation of law to foster the welfare of its members, and is exempted
from income taxation.
Types of Business
1. Service business – selling people’s time

2. Merchandising business – buying and selling

3. Manufacturing business – taking raw materials and using equipment

and labor to convert them into finished goods
Freshmen
Class Orientation in
ACC 102
Schedule of Classes
Section 1 - Ma'am Joy (09:00am-12:00pm) - Tue AND Fri
Section 2 - Ma'am Joy (01:00pm-04:00pm) - Tue AND Fri
Section 3 - Sir Arnil (01:00pm-04:00pm) - Tue AND Fri
Outline
Week 1 - Accounting and Its Environment
1 - Accounting Equation and the Double-Entry System
2 - Recording Business Transactions
2 - Adjusting the Accounts
3 - Worksheet and Financial Statement
4 - Completing the Accounting Cycle
5 - PERIOD 1 EXAM

6 - Merchandising Operations
7 - Completing the Cycle for a Merchandising Business
8 - Special and Combination Journals, and Voucher System
9 - Manufacturing Operations
9 - Payroll
10 - PERIOD 2 EXAM
Faculty of ACC 102

TRAZO, LORRAINE JOY ADAP GARCIA, ARNIL JOSIEPH

 Grading System
1st Year Level:
Final Grade = (Period 1 Grade * 50%) + (Period 2 Grade * 50%)

Periods 1 and 2 Grade = (Period Exam * 50%) + (Quizzes * 40%) + (Completion of

Google Classroom Activities * 10%)

Passing Grade: 75%

Retention Grade: 75%
 Important Reminders
- At the end of SY 2023-2024, you need to pass the TESDA
Bookkeeping NC III.
- Period 1 and Final Exams are done ON-SITE
- Everyone is encouraged to be a JPIA Member.
- There will be an incoming Freshmen Accounting Quiz Bowl.
Fundamental Concepts
1. Entity Concept – each entity should be evaluated separately

2. Periodicity Concept – dividing the entity’s life into meaningful reporting

periods. Users obtain timely information as basis of decision making

3. Stable Monetary Unit Concept – ignoring effects of inflation in the

accounting records
Periodicity Concept
Calendar Year – Starts on January 1 and ends on December 31

Fiscal Year – First day is anytime of the year but has a complete
12-month period

Natural Business Year – a twelve-month period that ends on any month

when the business is at the lowest or experiencing slack season.
 Think of
Going Concern
What is a Transaction?
A transaction is an agreement between a buyer and a seller to exchange
goods, services or financial instruments.
Source: https://www.investopedia.com/terms/t/transaction

Business transaction is an economic event or condition that directly

changes an entity’s financial condition or directly affects its results of
operations. An accounting transaction takes place when a business
exchanges a thing or things of value for another.
Source: Certified Accounting Technician Level 1 – Certified Bookkeeper, CERTS Knowledge
Engineering Team
Double-Entry
System
Debits vs. Credits
Debit is the
VALUE RECEIVED.

Credit is the
VALUE PARTED WITH.
The Accounting Equation

A= L +E
Assets = Liabilities + Equity
Income Statement Structure

R - E=
Revenue - Expenses =
P/L
Profit or
Loss
Profit

R > E greater
Revenue Expenses
than
Loss

R < E
Revenue less than Expenses
Asset
A present economic resource controlled by the entity as a result of past events. An economic resource is
a right that has the potential to produce economic benefits.

Examples:
◦ Current Assets
◦ Cash
◦ Cash Equivalents
◦ Notes Receivables
◦ Accounts Receivables
◦ Inventories
◦ Prepaid Expenses
◦ Non-Current Assets
◦ Property, Plant and Equipment
◦ Accumulated Depreciation
◦ Intangible Assets
Liabilities
A present obligation of the entity to transfer an economic resource as a result of past events.
An obligation is a duty of responsibility that the entity has no practical ability to avoid.

Examples:
◦ Current Liabilities
◦ Accounts Payable
◦ Notes Payable
◦ Accrued Liabilities
◦ Unearned Revenues
◦ Current Portion of Long-Term Debt
◦ Non-Current Assets
◦ Mortgage Payable
◦ Bonds Payable
Owner’s Equity
Equity is the residual interest in the assets of the enterprise after
deducting all its liabilities.

Examples:
◦ Capital
◦ Withdrawals
◦ Income Summary
Income
Increases in assets, or decreases in liabilities, that result in increases in
equity, other than those relating to contributions from holders of equity
claims.

Examples:
◦ Service Income
◦ Sales
Expenses
Decreases in assets, or increases in liabilities, that result in decrease in equity, other than
those relating to distributions to holders of equity claims.

Examples:
◦ Cost of Sales
◦ Salaries or Wages Expense
◦ Telecommunications, Electricity, Fuel and Water Expenses
◦ Rent Expense
◦ Supplies Expense
◦ Insurance Expense
◦ Depreciation Expense
◦ Uncollectible Accounts Expense
◦ Interest Expense
 Nominal versus Real Accounts
Nominal Accounts
Temporary Accounts
Income Statement Accounts
Closed at the end of the period
Income, Expense, Income and Expense
Summary and Withdrawal Accounts
Real Accounts
Permanent Accounts
Balance Sheet Accounts
Carried-over to the next period
Asset, Liabilities
and Capital Accounts
T-Account and Normal Balances

Account Title
Debit Side Credit Side
T-Account and Normal Balances

Assets
Debit Side Credit Side
Normal Balance
(Increase)
T-Account and Normal Balances

Liabilities
Debit Side Credit Side
Normal Balance
(Increase)
T-Account and Normal Balances

Capital
Debit Side Credit Side
Normal Balance
(Increase)
T-Account and Normal Balances

Drawing
Debit Side Credit Side
Normal Balance
(Increase)
T-Account and Normal Balances

Income
Debit Side Credit Side
Normal Balance
(Increase)
T-Account and Normal Balances

Expenses
Debit Side Credit Side
Normal Balance
(Increase)
The Accounting Process

Recording Classifying Summarizing Interpreting

Accounting Cycle
The accounting cycle represents the steps or accounting procedures
normally used by entities to record transactions and prepare financial
statements.

Source: Millan, Z., 2019, Intermediate Accounting 1A, Bandolin Enterprises

 Steps in Accounting Cycle
1. Identifying and analyzing transactions
2. Journalizing
3. Posting
4. Preparing the unadjusted trial balance
5. Preparing the adjusting entries
6. Preparing the adjusted trial balance
7. Preparing the financial statements
8. Closing the books
9. Preparing the post-closing trial balance
10. Preparing the reversing entries
Source: Millan, Z., 2019, Intermediate Accounting 1A, Bandolin Enterprises
Accounting Records
Journal – “book of original entry”
a. General Journal –used to record transactions other than those that are recorded in the special
journals.
b. Special Journal – used to record transactions of a similar nature.

Ledger – “book of final entry”

– is a systematic compilation of a group of accounts.

a. General ledger – contains all accounts appearing in the financial statements.
b. Subsidiary ledger – supporting ledger for controlling accounts in the general ledger.
Journalize Transactions
1. Prepare chart of accounts
2. Analyze documents
3. Prepare journal entry

Source: Competency Map of Bookkeeping NC III

Journalize Transactions
1. Prepare chart of accounts
100 – Assets 400 – Revenues
101 – Cash 401 – Legal Fees Earned
102 – Accounts Receivable
105 – Prepaid Insurance 500 – Expenses
106 – Office Supplies 501 – Salary Expense
108 – Furniture and Equipment 503 – Advertising Expense
504 – Utilities Expense
200 – Liabilities 509 – Miscellaneous Expense
201 – Accounts Payable
204 – Loan Payable

300 – Equity
301 – Nestor Martel, Capital
302 – Nestor Martel, Drawing
Journalize Transactions
2. Analyze documents
Official Receipts and invoices

Example:
Transaction
December 2, 2019 – Nestor Martel invested P60,000 cash to put up his
law firm – Nestor Martel Law Office
Analysis: The law firm received cash, in return, the firm should recognize the interest of
Nestor Martel.
 Journalize Transactions
3. Prepare journal entry

Example:
Transaction
December 2 – Nestor Martel invested P60,000 cash to put up his law firm
Analysis: The law firm received cash, in return, the firm should recognize the interest of Nestor Martel.

Date Accounts PR Debit Credit

Dec 2 Cash 101 P60,000

Nestor Martel, Capital 301 P60,000

Post Transactions
1. Prepare ledger Cash - 101
2. Transfer journal entries 60,000 6,000
60,000 2,500
3. Summarize ledger
12,500 1,000
10,500 3,600
7,500 45,000
5,000 1,500
5,500
12,000
155,500 77,100

P78,400
Prepare Trial Balance
1. List account titles Nestor Martel Law Office
Trial Balance
2. Transfer balances from the ledger December 31, 2019
3. Summarize trial balance Accounts Debit Credit
Cash P78,400
Accounts Receivable 8,900
Prepaid Insurance 6,000
Office Supplies 2,500
Furniture and Equipment 75,000
Accounts Payable P30,000
Source: Competency Map of Bookkeeping NC III Loan Payable 60,000
Nestor Martel, Capital 60,000
Nestor Martel, Drawing 12,000
Legal Fees Earned 44,400
Salary Expense 5,500
Advertising Expense 3,600
Utilities Expense 1,500
Miscellaneous Expense 1,000

Totals P194,400 P194,400

Adjusting Entries
Adjusting entries are entries made prior to the preparation of financial
statements to update certain accounts so that they reflect correct
balances as of the designated time.
Adjusting Entries
Types of Adjusting Entries
1. Accruals
a. Accrued Income
b. Accrued Expenses
2. Deferrals
a. Pre-collection of Income
b. Prepayment of Expenses
3. Provision for Depreciation of Property, Plant and Equipment or Fixed Asets
4. Provision for Estimated Uncollectible Accounts (Bad Debts)
5. Adjustment on Inventories – this is typical in merchandising and manufacturing concern
6. Correction of Erroneous Journal Entries
Prepare Financial Reports
1. Prepare financial statements
2. Analyze financial statements

Source: Competency Map of Bookkeeping NC III

Prepare Financial Reports
1. Prepare financial statements
Financial Statements are accounting reports prepared at the end of an accounting period (usually
one year) that provide financial information regarding the transactions that have been recorded
and summarized. The principal financial statements which are the end-products of accounting are
the:

A. Statement of Profit or Loss – also called as the Income Statement, is a statement, which shows the
revenue and expenses for a specified period. It shows the results of operations.
B. Statement of Changes in Equity – is a statement, which shows the summary of changes in the
equity for a given period. This statement supplements the Statement of Financial Position.
C. Statement of Financial Position – is a statement which shows the assets, liabilities and equity of the
business as of a specific date. It shows the financial condition of the business. This statement is called as
the Balance Sheet.
D. Statement of Cash Flows – is a summary of cash flows and cash outflows for a specific period, such
as month or a year.
Statement of Profit or Loss
Source : CERTS Knowledge Engineering Team, Certified Accounting
Technician Level 1: Certified Bookkeeper
 Statement of Changes in
Equity
Source : CERTS Knowledge Engineering Team, Certified Accounting
Technician Level 1: Certified Bookkeeper
Statement of
Financial
Position
Source : CERTS Knowledge Engineering
Team, Certified Accounting Technician Level
1: Certified Bookkeeper
Statement of
Cash Flows
Source : CERTS Knowledge Engineering
Team, Certified Accounting Technician Level
1: Certified Bookkeeper
Notes to
Financial
Statements
Source : CERTS Knowledge Engineering
Team, Certified Accounting Technician Level
1: Certified Bookkeeper
Closing Entries
The nominal accounts are closed at the end of the accounting period while
the real accounts are not closed and are held open.

By closing, this means that a nominal account which has an open balance
will be reduced to “Zero” balance.
Financial
Ratios
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Thank you!