Journalize transactions

LO1. Prepare chart of accounts

Bookkeeping NC III – UC1
Lloyd Irvin D. Lopez
PREPARE CHART OF ACCOUNTS

 At the end of this course learners will be able to know the following
 Definition and functions of Bookkeeping and Accounting.
 Types of business organization
 Types of business activities
 Basic Accounting Equation
 Basic Financial Statement
Bookkeeping Vs. Accounting

 In the simplest of terms, Bookkeeping is responsible for the recording of

financial transactions whereas Accounting is responsible for interpreting,
classifying, analyzing, reporting, and summarizing the financial
data. Bookkeeping and Accounting may appear to be the same profession to
an untrained eye
Chart of accounts

 A chart of accounts is a listing of the names of the accounts that a company

has identified and made available for recording transactions in its
general ledger. A company has the flexibility to tailor its chart of accounts to
best suit its needs, including adding accounts as needed.
Types of Business Organization

 Business Organization is the single-most important choice you’ll make

regarding your company. What form your business adopts will affect a
multitude of factors, many of which will decide your company’s future.
Aligning your goals to your business organization type is an important step, so
understanding the pros and cons of each type is crucial.

 There are 4 main types of business organization: sole proprietorship,

partnership, corporation, and Limited Liability Company, or LLC. Below, we
give an explanation of each of these and how they are used in the scope of
business law.
 Types of Business Organization
 Sole Proprietorship
 The simplest and most common form of business ownership, sole proprietorship is a
business owned and run by someone for their own benefit. The business’ existence is
entirely dependent on the owner’s decisions, so when the owner dies, so does the
business.
 Advantages of sole proprietorship:
 All profits are subject to the owner
 There is very little regulation for proprietorships
 Owners have total flexibility when running the business
 Very few requirements for starting—often only a business license
 Disadvantages:
 Owner is 100% liable for business debts
 Equity is limited to the owner’s personal resources
 Ownership of proprietorship is difficult to transfer
 No distinction between personal and business income
Types of Business Organization
 Partnership
 These come in two types: general and limited. In general partnerships, both owners
invest their money, property, labor, etc. to the business and are both 100% liable
for business debts. In other words, even if you invest a little into a general
partnership, you are still potentially responsible for all its debt. General
partnerships do not require a formal agreement—partnerships can be verbal or
even implied between the two business owners.
 Limited partnerships require a formal agreement between the partners. They must
also file a certificate of partnership with the state. Limited partnerships allow
partners to limit their own liability for business debts according to their portion of
ownership or investment.
 Advantages of partnerships:
 Shared resources provides more capital for the business
 Each partner shares the total profits of the company
 Similar flexibility and simple design of a proprietorship
 Inexpensive to establish a business partnership, formal or informal
 Disadvantages:
 Each partner is 100% responsible for debts and losses
 Selling the business is difficult—requires finding new partner
 Partnership ends when any partner decides to end it
Types of Business Organization
 Corporation
 Corporations are, for tax purposes, separate entities and are considered a legal
person. This means, among other things, that the profits generated by a
corporation are taxed as the “personal income” of the company. Then, any income
distributed to the shareholders as dividends or profits are taxed again as the
personal income of the owners.
 Advantages of a corporation:
 Limits liability of the owner to debts or losses
 Profits and losses belong to the corporation
 Can be transferred to new owners fairly easily
 Personal assets cannot be seized to pay for business debts
 Disadvantages:
 Corporate operations are costly
 Establishing a corporation is costly
 Start a corporate business requires complex paperwork
 With some exceptions, corporate income is taxed twice
Types of Business Organization
 Limited Liability Company (LLC)
 Similar to a limited partnership, an LLC provides owners with limited liability while
providing some of the income advantages of a partnership. Essentially, the advantages of
partnerships and corporations are combined in an LLC, mitigating some of the
disadvantages of each.
 Advantages of an LLC:
 Limits liability to the company owners for debts or losses
 The profits of the LLC are shared by the owners without double-taxation
 Disadvantages:
 Ownership is limited by certain state laws
 Agreements must be comprehensive and complex
 Beginning an LLC has high costs due to legal and filing fees
Types of Business Activities
 Understanding Business Activities.
 There are three main types of business activities:
operating, investing, and financing. The cash flows used and created
by each of these activities are listed in the cash flow statement.
 Operating activities relate directly to the business providing its goods to
the market, including manufacturing, distributing, marketing, and selling;
they provide most of the company's cash flow and hugely influence its
profitability.
 Investing activities relate to the long-term use of cash, such as buying or
selling a property or piece of equipment, or gains and losses from
investments in financial markets and operating subsidiaries.
 Financing activities include sources of cash from investors or banks, and
the uses of cash paid to shareholders, such as payment of dividends or
stock repurchases, and the repayment of loans.
Basic Accounting Equation
Who is ALICE?
Basic Accounting Equation
 Assets
 Anything the company owned that is convertible to Cash
 Example: Cash and cash equivalents, Insurance, Certificates of deposit, Accounts receivables,
Inventory, Equipment such as vehicles, Computers, etc.
 Liabilities
 Anything that the company owes
 Example: Loans, Notes Payable, Tax, Accounts payable, Utility Bills, Salaries or wages.
 Income
 is the money your business takes in
 Example: Net Income, Sales, Consulting fee, Etc.
 Capital/Equity
 Are investments of shareholders
 Example: Opening Balance Equity, Capital Share, Equity withdrawal.
 Expense
 are what the business spends money on
 Example: Purchase of office supply, shipping fee, depreciation, etc.
Basic Accounting Equation
 Accounting Equation Formula
 Assets= Liabilities + Owner's Equity
 Calculating the Equation
 The balance sheet holds the basis of the accounting equation:
1. Locate the company's total assets on the balance sheet for the
period.
2. Total all liabilities, which should be a separate listing on the balance
sheet.
3. Locate total shareholder's equity and add the number to total
liabilities.
4. Total assets will equal the sum of liabilities and total equity.
Basic Financial Statements
 The basic financial statements of an enterprise include the
 1) Balance Sheet (Or Statement Of Financial Position)
 The balance sheet provides a snapshot of an entity as of a particular date. It
list the entity's assets, liabilities, and in the case of a corporation, the
stockholders' equity on a specific date.
 2) Income Statement (Profit and Loss)
 The income statement presents a summary of the revenues, gains, expenses,
losses, and net income or net loss of an entity for a specific period. This
statement is similar to a moving picture of the entity's operations during this
period of time.
 3) Cash Flow Statement
 The cash flow statement summarizes an entity's cash receipts and cash
payments relating to its operating, investing, and financing activities during a
particular period.
 4) Statement Of Changes In Owners' Equity Or Stockholders' Equity
 A statement of changes in owners' equity or stockholders' equity reconciles the
beginning of the period equity of an enterprise with its ending balance.
 Quiz
 Instruction: Provide the following according to your daily transaction
1. Give examples of Assets
2. Give examples of Liability
3. Give examples of Income
4. Give examples of Equity/Capital
5. Give examples of Expense
 Identify is the item is an Asset, Liability, Income, Capital or Expense
1. Purchase office supply
2. Electric Bill
3. Sold items
4. Computer set
5. Invest of Mr. De Vera for P20,000.00
Thank you very much!