BOOKKEEPING NCIII

PREPARE
CHART OF
ACCOUNTS
Learning Facilitator: BILLY JAMES ZANDUETA
IMPORTANCE OF ACCOUNTING IN
BUSINESS
Whenever we hear the word accounting, we often associate it with figures and then we relate it to
business. We failed to realize that accounting is not for business alone.

Wherever we go and in everything we do which involves decision-making, accounting is present.

Whether we are at home, in school, or anywhere else, accounting has always been a part of our
daily struggle for survival. This makes accounting to have a universal existence.
IMPORTANCE OF ACCOUNTING IN
BUSINESS
There are so many people who depend on their means of livelihood on employment in various
business establishments. Thus, business is of central importance in our economic society.
Business as an organization has some goals to attain. Its success depends to a great extent on the
ability of management to render decisions on behalf of the business. But what is the basis of
management in making decisions?
IMPORTANCE OF ACCOUNTING IN
BUSINESS
Accounting provides management with information essential to the efficient conduct and
evaluation of its activities. It gathers data that are financial in character and identifies which
data are relevant to the decisions to be made and can be used in making better decisions.
Therefore, decision-makers in the business are relying on accounting data to be able to make
decisions.
WHAT IS
BOOKKEEPING?
Bookkeeping is a part of accounting service. Is the process of recording
systematically the business transactions in a “chronological manner.” It is
systematic because “it follows procedures and principles.” It is chronological
because the transactions are recorded “in order of the date of occurrence.” The
recording aspect is just one of the four major functions of Accounting. Since
bookkeeping traditionally assumes the responsibility of recording functions, it
runs short of classifying and summarizing aspects which form part in the
completion of bookkeeping work.
DEFINE
BOOKKEEPING
Bookkeeping involves organizing and managing all business transactions in a
company.

Bookkeeping is the recording, on a day-to-day basis of financial transactions

and business information. It is concerned with ensuring that records of those
individual financial transactions are accurate, up-to-date, and comprehensive.
Accuracy is therefore vital to the process.
Bookkeeping provides the information from which accounts are prepared but
is a distinct process, preliminary to accounting.
DEFINE
ACCOUNTING
Accounting is a service activity. Its function is “to provide quantitative
information, primarily financial in nature, about economic entities that are
intended to be useful in making decisions.”

Accounting is the systematic and comprehensive recording of financial

transactions pertaining to a business. Accounting also refers to the process of
summarizing, analyzing, and reporting these transactions. The financial
position and cash flows over a particular period are a concise summary of
hundreds of thousands of financial transactions it may have entered into over
this period. Accounting is one of the key functions for almost any business; it
may be handled by a bookkeeper and accountant at small firms or by sizable
finance departments with dozens of employees at larger companies.
DEFINE
ACCOUNTING
A.I.C.P.A.: “Accounting may be defined as the art of recording, classifying,
summarizing in a significant manner and in terms of money, transactions, and
events which are in part at least of a financial character and interpreting the
results thereof.

Taylor and Shearing: "Accounting may be defined as the art and science of
recording business transactions in a methodological manner so as to show: (a)
the true state of affairs of a business of a particular period of time and, (b) the
surplus or deficiency which has accrued during a specific period." It may be
very aptly pronounced now-a-days that due to the spectacular development in
the research and analytical aspects, Accounting, in the present day, has not
confirmed itself to only record-keeping but has spread its branches to the
farthest corners of commercial activities.
DEFINE
ACCOUNTING
H. Chakravorty: “Accounting is the science of recording, classifying and
summarizing transactions so that relation with outsiders is exactly determined
and the result of operation during a particular period can be calculated, and the
financial position as the end of the period may be shown.”
FIVE (5) ESSENTIAL FUNCTIONS OF ACCOUNTING/FOUR
(4) MAJOR FUNCTIONS OF ACCOUNTING:

ANALYSIS AND
RECORDING INTERPRETS

CLASSIFYING COMMUNICATE
Thank You

SUMMARIZING
• RECORDING
This is the basic function of accounting. This involves the routine and mechanical process of writing
01 down the business transactions and events in the books of accounts in a chronological manner called
“Journalizing.” It is essentially concerned with not only ensuring that all business transactions of
financial character are in fact recorded but also that they are recorded in an orderly manner.
Recording is done in the book called “Journal”.

Before business transactions and events could be recorded, firstly, they should be identified, analyzed
02 and measured. By identifying, we mean, there should be a basis of determining whether such were
business transactions or not. As a rule, only transactions with financial bearing to the business are
recognized. By analyzing, we mean, that there should be a “dual effect”, normally the value received
and the value parted with of the transactions. By measuring, we mean the assigning of monetary
values involved in a transaction. In the Philippines, we used the peso as the common financial
denominator.
2. CLASSIFYING
Classification is concerned with the systematic analysis of the recorded data, with a view to group
01 transactions or entries of one nature in one place. This involves sorting or grouping similar
transactions and events into their respective kind and classes. This is actually the process of
transferring the entries from the journal to the ledger called “Posting.” The work of classification is
done in the book termed as “Ledger”.
3. SUMMARIZING
This involves presenting the classified data in a manner that is understandable and useful to the
01 internal as well as external end-users of accounting statements. This involves the completion of the
financial statements and the accounting requirements as well. This starts from striking of a trial
balance, plotting down of adjusting entries in the worksheet and the preparations of closing entries,
post-closing trial balance, and reversing entries. This process leads to the preparation of the following
statements: (1) Trial Balance, (2) Statement of Performance/ Income Statement (3) Statement of
Financial Position/Balance sheet, (4) Statement of Cash Flows, (5) Statement of Changes in Equity.
4. ANALYSIS AND INTERPRETS
01 This is the final function of accounting. The recorded financial data is analyzed and interpreted in a
manner that the end-users can make a meaningful judgment about the financial condition and
profitability of the business operations. The data is also used for preparing the plan and framing
policies for executing such plans. This involves “analytical and interpretative works.” It is then when
financial statements are analyzed, interpreted, and communicated to those interested parties that these
could be of great help to management as a basis for making a sound decision.
5. COMMUNICATE
01 The accounting information after being meaningfully analyzed and interpreted has to be
communicated in a proper form and manner to the proper person. This is done through the preparation
and distribution of accounting reports, which include besides the usual income statement and the
balance sheet, additional information in the form of accounting ratios, graphs, diagrams, funds flow
statements etc.
DIFFERENCE BETWEEN ACCOUNTING
AND BOOKKEEPING
Since bookkeeping traditionally assumes the responsibility of recording functions, it runs short of
classifying and summarizing aspects that form part of the completion of bookkeeping work.
Accounting, on the other hand, requires complete and accurate bookkeeping records necessary in the
performance of its responsibility which is the analysis and interpretation of the financial reports.
Accounting could not reach at this final point without first passing through the bookkeeping process
and bookkeeping alone could not arrive at the desired result of the entire accounting process. Hence,
the relationship between Bookkeeping and Accounting can be transcribed into a common saying that
“one is useless without the other.” In short, the bookkeeper does the “how accounting is done” which
refers to the mechanical aspects, and the professional accountant does the “why accounting is done”
which refers to the analytical and interpretative aspects of accounting.
DIFFERENCE BETWEEN ACCOUNTING
AND BOOKKEEPING
Accounting and bookkeeping are both financial tools used for the recording of business transactions.
There are slight differences between accounting and bookkeeping and they are mainly some technical
differences. To understand what separates accounting from bookkeeping we must completely
understand both categories and we must learn how they function in everyday use.

Bookkeeping is the process of recording business transactions and the relations between the
transactions. The process of bookkeeping is mainly mechanical and does not require any analysis.
Instead of analyzing the bookkeeping relies only on the recording of the information. In the past
times, the records were kept in a book and this is why this financial tool is called bookkeeping. In the
modern days, books got substituted with modern bookkeeping software which runs on personal
computers. This kind of software is very sophisticated and it can tremendously help the job of the
bookkeeper.
DIFFERENCE BETWEEN ACCOUNTING
AND BOOKKEEPING
Basically the process of bookkeeping is consisting from the recording of the incoming transactions
(received payments in form of money or cheques from customers, etc.) and the recording of the
outgoing transactions (paying for specific bills in the correct time, etc.).

There are two basic kinds of bookkeeping: single-entry bookkeeping and double-entry bookkeeping.
In the case of single-entry bookkeeping, we can find each transaction carried to the debit column or
the credit column. On the contrary, in the case of double-entry bookkeeping, we can find two entries
for each transaction carried to the ledger. One entry is carried to the credit side and the other to the
debit side. This is done in the way that two entries can be checked.
DIFFERENCE BETWEEN ACCOUNTING
AND BOOKKEEPING
Accounting is also the systematic recording of business transactions but it includes additional reports
and further financial analysis of the transactions. This means that bookkeeping is part of the
accounting process. Accounting besides the recording of the financial transactions also prepares
statements, liabilities of the assets, and the various results of the whole business. Accounting is using
the bookkeeping information, interpreting the data and compiling it into reports, and presenting it in
the form of reports to the management.
DIFFERENCE BETWEEN ACCOUNTING
AND BOOKKEEPING
Accounting is used in every business from small companies to large corporations. In the smaller
companies one person can perform both the accounting and bookkeeping but in large companies and
corporations a whole department of people is needed to successfully perform the accounting and
bookkeeping tasks. Smaller business with a small number of transactions does not provide too much
work for the bookkeeper, so he can perform the tasks of the accountant too.
DIFFERENCE BETWEEN ACCOUNTING
AND BOOKKEEPING
The important part of accounting is the analysis of the business transactions and the delivery of the
business results to the management of the company. The business results are usually delivered in the
form of reports. The management can see from these reports whether the company is successful or not
and with the help of the analysis they can see where the problems come from in case of negative
results.
WHAT IS BUSINESS
FOR?
The primary motive of a person to engage in business is profit. When he puts
in or invests capital into the business which may either be in terms of money,
property or both, he expects to receive in return an amount more than he
invested.

But risk is inherent in every business activity so that the results of its
operations may not always turn out to be expected. Business sometimes
suffers set-backs and thereby incurs losses. However, a business cannot make
profits, it cannot also incur loses. This is an instance wherein total sales or
income earned and total costs and expenses incurred at the end of a given
period are equal. This “No Profit, No Loss” situation of the business is being
referred to as “Break-even.”
WHAT IS BUSINESS
FOR?
Illustrated below are the three (3) possible results of business operations:

At Profit At Loss At Break-even

Sales or Income Earned Ᵽ 100,000 Ᵽ 100,000 Ᵽ 100,000
Less: Costs & Expenses incurred 80,000 120.000 100,000
Net Profit (Loss) Ᵽ 20,000 (Ᵽ 20,000) Ᵽ-0–
WHY IS THE KEEPING OF BUSINESS
RECORDS IMPORTANT?

1
Because the owner of the business is a profit-
oriented person, his main concern is focused on
the movements of his capital investments and
the day-to-day activities of the business affect
his capital investments to consider the volume
of transactions, it would be very impossible for
him to memorize or even recall what has
transpired during the day.
WHY IS THE KEEPING OF BUSINESS
RECORDS IMPORTANT?

The records that are used and kept for this

purpose are called “books of accounts.”
The characters are called “accounting data”
which will be processed and transformed
into a report form called “financial
statements.”
 WHO DOES THE
RECORDING IN THE BOOKS
OF ACCOUNTS?
When the business becomes bigger; it might be difficult for the owner to do the
recording works especially if he has no adequate background in Accounting.

The recording works are normally done by a “bookkeeper” while the transformation
of the accounting into report form, analysis and interpretation of the report to the
owner in making a decision are performed by an “Accountant.”
 WHO DOES THE
RECORDING IN THE BOOKS
OF ACCOUNTS?
Accountants prepare reports based on the recorded data and the interpretation of the
reports. The work of the bookkeeper is reviewed by the accountants.

The accountant must possess a much higher level of knowledge and analytical skill
than is required of the bookkeeper. The scope of work of an accountant at the
beginning levels may include some bookkeeping.
NATURE OF BUSINESS
A business firm may be classified in terms of what they offer, sell or
produce. They are as follows:

The business derived its income from services rendered to clients in case
Service concern of professional services like that of Accountants, Lawyers, Doctors,
Dentists, etc., or to customers in the case of non-professional services,
like that a hotel where room rental is the main line of their business,
hairdresser, auto mechanic, and etc.
NATURE OF BUSINESS
A business firm may be classified in terms of what they offer, sell or
produce. They are as follows:

The business is engaged in buying goods or commodities or any form of

Merchandising finished products and sells them at a profit. It might be at a rental or
concern wholesale basis. Grocery stores are best example of this nature of
business.
NATURE OF BUSINESS
A business firm may be classified in terms of what they offer, sell or
produce. They are as follows:

The business is engaged in buying of raw materials and supplies to be

Manufacturing processed or manufactured, converting them into finished products. For sale at
concern a profit, like that of a furniture shop, manufacturers of cars and home
appliances, etc.
NATURE OF BUSINESS
A business firm may be classified in terms of what they offer, sell or
produce. They are as follows:

The business is engaged in planting of crops and sells its products either in raw
Agri-business or finished form at a profit.
NATURE OF BUSINESS
A business firm may be classified in terms of what they offer, sell or
produce. They are as follows:

Are those involved in more than one type of activity which are manufacturing,
Hybrid companies merchandising and service.
FIVE (5) UNDERLYING BASIC
ACCOUNTING ASSUMPTIONS:
1 2
Accounting Entity Assumption or
Business Entity Assumption – this
assumes that the business has a
personality that is separate and
distinct from the owner.
2. Going concern Assumption – this
assumes that the business has a
continuous life of existence unless
there is a specific evidence to the
contrary.
3
Time Period Assumption – this assumes
that because the business has a continuous
life of existence, it is very impractical to
wait for several years before its financial
position, performance or results of
operations and cash flows can be known.
Due to the duration of its existence, the life
of the business is divided into equal
periods. An accounting period can be a
period of 1 month, 3 months, 6 months or
semi-annually and 1 year or
annually/yearly.
FIVE (5) UNDERLYING BASIC
ACCOUNTING ASSUMPTIONS:

4 5
Unit of measure Assumption – this Accrual Basic Assumption – this
assumes that peso is our unit of assumes that the recording of income
measure and the purchasing power and expenses follow the accrual basis of
will not fluctuate and therefore is accounting. Income is recognized when
stable. All liabilities and owner’s earned regardless of when received and
equity are also stated in terms of peso expense is recognized when incurred
as shown in the Balance Sheet. regardless of when paid.
FORMS OF BUSINESS ORGANIZATION AND
THEIR CAPITAL STRUCTURE:
Sole Proprietorship – this is the simplest form of
01 business organization where capital is owned and
provided by one person called a “Proprietor” who
may manage the business by himself or hire
another person to do so. Whatever happens to the
business, whether it succeeds or fails the owner
has to bear it all including any unpaid obligations
that the business may have incurred. Aside from
this, the owner cannot claim salaries or
remuneration from his Business. However, he can
make withdrawals from his capital.
FORMS OF BUSINESS ORGANIZATION AND
THEIR CAPITAL STRUCTURE:
Partnership – the capital of the business is owned
02 or provided by two or more persons called
“Partners” who should set forth agreements
among themselves which include among others,
the investments of each partner, how profit and
loss are to be divided, and settlement to be made
upon death or withdrawal of a partner as
embodied in the “Articles of Co-Partnership” they
have executed. As to management, one of the
partners may take charge in the affair of the
business or they may hire another person to do so.
FORMS OF BUSINESS ORGANIZATION AND
THEIR CAPITAL STRUCTURE:
Corporation – this is the biggest and the most Shares can be transferred without dissolving the
03 complicated form of business organization. This is
organized by at least five but not more than fifteen
corporation, so it enjoys unlimited life. Although
the maximum number of years for a corporation to
persons called “Incorporators.” Its capital is called exist is “50 years,” it can extend its life by
“Share Capital.” Share capital is divided into units amending the “Articles of Incorporation.” This is
called “shares” and each share has a designated the reason why there are corporations that existed
value called “Par Value.” Owners of the shares are for more than 100 years.
called “Shareholders.”
FORMS OF BUSINESS ORGANIZATION AND
THEIR CAPITAL STRUCTURE:
The accumulated profit of a corporation is called
03 “Accumulated Profit/Loss” which is distributed to
the shareholders in the form of “Dividends” which
serve as their respective shares of the
corporation’s profit. The powers of a corporation
are vested upon by a governing body called the
“Board of Directors” which formulates its policies
and the “President” executes the said policies. The
corporate business may be managed by anyone of
the shareholders or by a professional manager
appointed by the “Board of Directors.”
FORMS OF BUSINESS ORGANIZATION AND
THEIR CAPITAL STRUCTURE:
Co-operatives - are autonomous associations
04 formed and democratically directed by people
who come together to meet common economic,
social, and cultural needs. Founded on the
principle of participatory governance, co-ops are
governed by those who use their services: their
members.
A cooperative organization is an association of
persons, usually of limited means, who have
voluntarily joined together to achieve a common
economic end through the formation of a
democratically controlled organization, making
equitable distributions to the capital required, and
accepting a fair share of risk and benefits of the
undertaking.
FORMS OF BUSINESS ORGANIZATION AND
THEIR CAPITAL STRUCTURE:
Based on the principles of empowerment,
04 education, and community, co-ops operate
laterally promoting participation both within their
own organization, and through a focus on
community interaction, and support.
The cooperative model is as flexible as any
organizational structure and may be applied to the
social services sector, used to create shared
infrastructure, as well as to pursue business
ventures. The cooperative model is as flexible as
any organizational structure and may be applied to
the social services sector, used to create shared
infrastructure, as well as to pursue business
ventures
COMMON TYPES OF CO-OPERATIVES
INCLUDE:
Retail Co-operatives, whose members are, more often than not, the very patrons of their establishment,
01 buying a share in the co-op as a prerequisite to shopping. These co-operatives tend to be governed by a
board of directors elected by the membership annually or bi-annually.

02 Credit Unions, whose members similarly invest in a share in the organization as a prerequisite of
participation, and generally elect a board of directors.
COMMON TYPES OF CO-OPERATIVES
INCLUDE:
Service Provider Co-operatives, whose members generally share in the costs of renting or purchasing the
03 space, and/or materials necessary for their work as a co-operatives. In these instances, direct democracy is
usually the prevalent method of decision-making.

Housing Co-operatives often spring up in areas where residential costs are high and offer a method for
increasing living standards, one's sense of community, and safety. These co-ops work similarly to Service
04 Provider Co-ops in that they are usually directed by first-person democratic exchange; often they work on
the consensus model.
THAT'S ALL FOR
TODAY
I HOPE YOU LEARN SOMETHING TODAY!