INTRODUCTION TO

BOOKKEEPING
C AT H E R I N E L . S E R R A O N
RESOURCE SPEAKER
BOOKKEEPING NC-III
APRIL 8-10, 2019
 END IN MIND
At the end of the session the participants will be able to:
• familiarize oneself with the merchandising business;
• analyze transactions from both the seller’s and the buyer’s point
of view;
• gain a better understanding on the different account titles used
in accounting for merchandising;
• value the functions and significance of bookkeeping as applied
in real-life situation.
 LET’S WARM UP!
PURPOSES:
OWNERSHIP: • Profit
Sole Proprietorship • Expand as economic
Partnership activity
Corporation • Improves life of
stakeholders

BUSINESS
ACTIVITIES: SIZE:
Service, Merchandising, Micro, Small, Medium,
Manufacturing Large,
LEGAL OR LAWFUL:
DTI, SEC, CDA, BIR, Philhealth,
SSS, Pag-Ibig, DOLE,
Government Regulatory Agency,
City Hall (BPLO)
The
The purpose
purpose ofof this
this
discussion
discussion isis to
to
review
review the
the basic
basic
steps
steps of
of the
the
accounting
accounting process.
process.
First, however, let’s look at...

VS.
 FUNCTIONS OF ACCOUNTING
• Keeping Systematic Record of Business Transactions.
• Protecting Properties of the Business.
• Communicating Results to Various Parties or Connected
with the Business
• Meeting Legal Requirements
 NATURE OF A MERCHANDISING
BUSINESS
• Engaged in the buying and selling of merchandise at a profit to
generate income.
• Can be a wholesaler or a retailer
POINTS OF VIEWS CONSIDERED
 Let’s look at the focused area...

The
Accounting
Cycle

The accounting cycle is the process by which

accountants prepare financial statements for
an entity for a specific period of time.
STEPS IN THE ACCOUNTING CYCLE

Analyze Journalize Post entries to Prepare a trial

source transactions the accounts balance.
document in the general in the general
and identify journal. ledger.
business
transactions

Prepare financial
statements.
 DECISION-MAKING FRAMEWORK:
Does it affect the composition of either
assets, liabilities, equity, revenues, or
expenses?
Is there a YES NO
monetary YES Record in Do not
amount that the book. record.
can be assigned NO Do not Do not
to the event? Record. record.
BUYER’S POINTS OF VIEW
SELLER’S POINTS OF VIEW
Buyer Buyer
requests for Seller send Seller
issues a
quotation quotation shipped
purchase
from the to the goods to the
order to the
seller. buyer. buyer
seller.

Buyer receives Seller

the invoice and prepares Buyer to
records the sales invoice receive the
transaction in to be sent to goods.
the books. customer
STEPS IN THE ACCOUNTING CYCLE

Analyze Journalize Post entries to Prepare a trial

source transactions the accounts balance.
documents in the general in the general
journal. ledger.

Prepare financial
statements.
 FIVE MAJOR ACCOUNTS:
 ASSETS
 LIABILITIES
 EQUITY/ OWNER’S CAPITAL/
STOCKHOLDERS’ EQUITY
 INCOME/REVENUE
 EXPENSES
 ASSETS

Economic resources controlled by the

enterprise as a result of past
transactions and events and from
which future economic benefits are
expected to flow to the enterprise.
CLASSIFICATION OF ASSETS
CURRENT ASSETS
are all assets which are expected to be
realized within ordinary course of the
business, or a span of 12 months.
CLASSIFICATION OF ASSETS
NON-CURRENT ASSETS
Are assets that did not meet the criteria for
current assets are classified as non-
current.
 EXAMPLES:
• CASH
• the money that is
deposited in
banks and even
undeposited
checks from
customers.
 EXAMPLES:
• ACCOUNTS
RECEIVABLE
• represents the
amount that are
collectible from
customers.
 EXAMPLES:
NOTES RECEIVABLE
Sometimes called promissory notes, it is a
written document representing the amount
that are collectible from customers.
Have longer maturity dates than accounts
receivable.
 EXAMPLES:
• MERCHANDIS
E INVENTORY
• These are the
products normally
held for sale.
 EXAMPLES:
• SUPPLIES
• Represents the
unused office or
store supplies
 EXAMPLES:
PREPAID ASSETS/PREPAYMENTS
Advance payment for service or expense
anticipated to be received by the entity
in the future.
Ex. deposit for rent, prepaid insurance.
 EXAMPLES:
• EQUIPMENT
• Machineries
needed in the
production of
goods and
services.
 EXAMPLES:
• LAND AND
BUILDING
• These are the real assets
owned by the company
so they can use them
for their business to
operate normally.
 EXAMPLES:
• INTANGIBLE ASSETS
• Assets having a relatively long
life, with no physical
existence, whose values lies
rights, privileges and
competitive advantage which
they give the owner.
 LIABILITIES
Present obligations of an entity arising from past
transactions or events, the settlement of which is
expected to result in an outflow from the entity of
resources embodying economic benefits.
CLASSIFICATION OF LIABILITIES

• CURRENT LIABILITIES
 Are liabilities which are expected to be settled to
paid by the entity within 12 months.
 CLASSIFICATION OF LIABILITIES

• NON-CURRENT LIABILITIES
 Form the residual portion of the liabilities. These are
liabilities which the entity expects to settle after
more than a year, or have the legal or contractual
capacity to defer payment accordingly.
 EXAMPLES:
• ACCOUNTS
PAYABLE
• Represents the
obligation to pay
supplier after a
certain number of
days.
 EXAMPLES:
• NOTES
PAYABLE
• Are written
promises of the
entity to pay a sum
certain in a future
determinable time.
 EXAMPLES:
• UNEARNED
REVENUE
• Represents an
obligation to
deliver service
to customers.
 EQUITY OR OWNER’S EQUITY

• Are the owner’s claims in the business. Is

the residual interest in the assets of the
enterprise after deducting all its liabilities.
 EQUITY OR OWNER’S CAPITAL
 Owner’s Capital – for sole proprietorships and
partnerships.
 Ex: Serraon, Capital
Partner A, Capital; Partner B, Capital
 Stockholders’ Equity – for corporations. It usually have
common stock account, a preferred stock account, an
additional paid-in capital account, and a retained
earnings account.
 REVENUES
Are the amount received by a business earned as a
result of selling something or rendering a service.
 Classifications:
1. Operating Revenue
2. Non-Operating revenue
 REVENUE ACCOUNTS
 Sales Revenue
 Service Revenue
 Interest Revenue
 Dividend Revenue
 EXPENSES:
 Amount consumed by the business to operate as the
result of attempting to generate revenues.
 Examples:
Cost of Goods Sold Salaries Expense
Utility Expense Bad Debt Expense
Depreciation Expense Interest Expense
Office Supplies Expense Advertising Expense
Insurance Expense Rent Expense
 CATEGORIES OF ACCOUNTS
 Real Accounts –includes Assets, Liabilities, and
Capital/Equity (i.e., Balance Sheet accounts).
 Nominal Accounts - include revenues and
expenses.
 NUMBERING ACCOUNTS
The listing of all accounts and their account numbers is called the
chart of accounts.
A typical account numbering scheme might appear as follows:

Assets
Assets 100-199
100-199 Revenues
Revenues 400-499
400-499
Liabilities
Liabilities 200-299
200-299 Expenses
Expenses 500-599
500-599
Equities
Equities 300-399
300-399
 INVENTORY SYSTEMS IN A
MERCHANDISING BUSINESS
The Periodic System
Used by businesses
selling goods with
different low-priced
items that are
vs.
voluminous. Usually
determined cost of goods
sold at the end of the
accounting period.
The Perpetual
System
Used by businesses
selling goods with high-
priced items. Running
balance of inventory on
hand and cost of sales
are shown continuously.
 BUYER’S POINTS OF VIEW
(ACCOUNT TITLES USED FOR PERIODIC SYSTEM
ONLY)

• Purchases – used to record the cost of goods or merchandise bought

for the purpose of resale.
• Purchases Returns and Allowance – used to record returns
acknowledged or allowances granted by the supplier to the buyer.
• Purchase Discount – a reduction from the purchase price of the
merchandise granted by the supplier to the buyer for paying within the
discount period.
• Freight-in – the cost of transporting the merchandise from the seller’s
place to the buyer’s place. Also called Transportation-in
 SELLER’S POINTS OF VIEW
(ACCOUNT TITLES USED)
• Sales – the proceeds from the sale of price of goods sold credited to
the revenue account.
• Sales Returns and Allowance – used to record returns acknowledged
or allowances granted by the supplier to the buyer.
• Sales Discount – a reduction from the sales price of the merchandise
granted by the seller to the buyer for paying within the discount
period.
• Freight-out or Delivery Expense – the cost of transporting the
merchandise from the seller’s place to the buyer’s place of business.
 PRACTICE
 Account to be used when the company received
payment/collection from customer for assets sold and also
used when payment is made to suppliers for assets
acquired.

Cash
 PRACTICE
Account to be used when the company sold
merchandise or assets on account. Represents the
amount that are collectible from customers.

Accounts Receivable
 PRACTICE
 Under perpetual system, account to be used when the
company acquire inventory both in cash or in account. Also
used when the owner invested initial inventory under periodic
system. Represents the product normally held for sale.

Merchandise Inventory
 PRACTICE
Account to be used when the company bought
supplies to be used in the operation of the
business.

Supplies
 PRACTICE
Account to be used when the company bought
machineries needed in the operation of the
business.

Equipment
 PRACTICE
Account to be used when the company bought
merchandise or acquire assets on account. Represents the
obligation to pay supplier after a certain number of days.

Accounts Payable
 PRACTICE
Account to be used when the company acquire
loan from a bank represent by a promissory note.

Notes Payable
 PRACTICE
Account that represents the investments or
contribution of the owner of the business.

Owner, Capital
 PRACTICE
Account that represents the deduction in the
capital account when owner gets something from
the business to use for its personal use.

Owner, Drawing
 PRACTICE
Account to be used when the company sold
merchandise both in cash or in account.

Sales
 PRACTICE
Account to be used under periodic system when
the company acquire inventory both in cash or in
account.

Purchases
 PRACTICE
Account to be used for payment of utilities.

Utilities Expense
 PRACTICE
Account to be used for payment of salaries.

Salaries Expense
 THANK YOU!! &
• THAT’S ALL FOLKS