Bookkeeping

Handout
Prepared by:
Gierome Ian Bisana
 Reminder: This is NOT an official module or file from the DepEd. This
is made to guide students regarding the subject of Bookkeeping 9/10. It
is not recommended to be used as a reviewing material as definitions
and terms may not be accurate. Thank you.

Table of Contents
Accounting and Bookkeeping --------------------------------------------- 2

Fundamentals of Accounting
Accounts --------------------------------------------------------------------- 3
Balances --------------------------------------------------------------------- 7

The Accounting Cycle

Transactions
Journalizing
Ledger Posting
Trial Balance
Adjusting Entries and Worksheet
Financial Statements
Adjusted Trial Balance
Closing Entries
Post-Closing Trial Balance
Reversing Entries

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 Accounting and Bookkeeping
I. Introduction
Most people think that accounting and bookkeeping are similar.
Generally, accounting and bookkeeping deal with finance within the
business, but the two still differ in their activities.

II. Discussion
Accounting is the process of recording, classifying, summarizing,
and interpreting business transactions to make financial decisions.

Accounting is divided into various types or branches namely:

 Financial Accounting
 Management Accounting
 Tax Accounting (Taxation)
 Cost Accounting
 Government Accounting
 Auditing
 Bookkeeping

Bookkeeping is the routinary, systematic process of recording

business transactions to make business papers.

In summary, bookkeeping is more focused on recording business

transactions to make business papers while accounting is more
focused on interpreting business papers to make financial decisions.

III. Activities
Answer the following questions.
1. What is accounting?
2. What is bookkeeping?
3. How do you differentiate bookkeeping from accounting?

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 Accounts
I. Introduction
Bookkeeping is a branch of accounting. Therefore, we must
understand the fundamentals of accounting to understand
bookkeeping. The fundamentals of accounting are divided into two:
the accounts and the balances.

II. Discussion
Accounts are individual categories used to record business
transactions.

Accounts are classified mainly into five types:

1. Assets- resources owned by the business used to generate income.
1.1. Different Accounts of Assets
Cash- money or currency on hand and in the bank.
Accounts Receivable (A/R)- collectibles from customers
through verbal promise.
Notes Receivable (N/R)- collectibles from customers through
promissory notes.
Interest Receivable (I/R)- collectibles from promissory notes
through interest over time.
Supplies- resources used in short-term operations.
Prepaid Expense- expenses paid in advance but not yet
incurred.
Accrued Income- income earned but not yet collected.
Contra-Assets- deducted to some asset accounts such as
allowance for bad debts and accumulated depreciation.

Property, Plant & Equipment (PPE)- resources used in long-

term operations such as land, equipment, machinery, vehicles,
furniture and fixtures (F&F), etc.
Intangible Assets- non-physical resources owned by the
business such as patents, trademarks, franchises, copyright,
goodwill, etc.

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2. Liabilities- debts and obligations the business owes.
2.1. Different Accounts of Liabilities
Accounts Payable (A/P)- debts from the purchase of assets
or services on credit through verbal promise.
Notes Payable (N/P)- debts from the purchase of assets or
services on credit through promissory notes.
Interest Payable (I/P)- debts from promissory notes through
interest over time.
Loan Payable (L/P)- debts from borrowing cash through
banks or other sources.
Unearned Revenue- income collected but not yet earned.
Accrued Expenses- expenses incurred but not yet paid.

Mortgage Payable- long-term debts from the purchase of

real estate such as building and land on credit.
Bonds Payable- long-term debts from the purchase of
business security and insurance.

3. Owner’s Equity (OE)- portion of the assets owned by the owner/s

after deducting the liabilities.
3.1. Different Accounts in Owner’s Equity
Capital- investments of the owner/s for the business.
Drawings- withdrawals of the owner/s for personal use. It is
deducted from the total owner’s equity.
Income Summary- summary of income and expense
balance.

Income Summary = Income -

Expense

4. Income/Revenue- the amount earned from operations.

4.1. Different Accounts in Income/Revenue

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 Service Income- the amount earned from rendering
services.
Sales Income- the amount earned from selling merchandise.

5. Expense- the cost done to generate income.

5.1. Different Accounts in Expense
Rent Expense- the cost done for building and land rentals.
Salaries Expense- the cost done for employee payments.
Utilities Expense- the cost done for water, electricity, etc.
Supplies Expense- the cost done for supplies purchased.
Insurance Expense- the cost done for insurance payments.
Depreciation Expense- the cost done for assets that are
decreasing value over time.
Bad Debts Expense- the cost done for receivables
estimated to be uncollectible over time.

The accounting equation is a fundamental principle in

bookkeeping that can be used to record business transactions. The
accounting equation is:

Assets = Liabilities + Owner’s

Equity

The chart of accounts (CoA) is a list of all the accounts used by

the business in recording business transactions. An example of a
chart of accounts is:
Account Account Title / Name
No.
101 Cash
102 Accounts Receivable
103 Supplies
104 Furniture and Fixtures
201 Accounts Payable
301 G. Bisana, Capital
302 G. Bisana, Drawings
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 401 Service Income
501 Rent Expense
502 Salaries Expense

III. Activities
A. Classify the following accounts whether they are an asset, liability,
owner’s equity, income/revenue, or expense.
1. Cash 6. Accounts Receivable
2. Accounts Payable 7. Delivery Truck
3. Furniture and Fixtures 8. Building
4. N. Laus, Capital 9. Advertising Expense
5. Service Income 10. Notes Payable

B. Identify what account is being described based on the keyword/s.

1. Collectibles through verbal promise
2. Collectibles through a promissory note
3. Investment
4. Money
5. Amount earned from rendering services
6. Debts through a promissory note
7. Resources in long-term operations
8. Cost for rentals
9. Cost for employees
10. Debts through a promissory note

C. Analyze the net balances of each account and answer the following
questions using the accounting equation.

Cash P Coffee Supplies

365,000 20,000
A/R F&F
21,000 100,000
Equipment Coffee Maker
30,000 100,000

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 Album Supplies P G. Bisana, Drawings
70,000 20,000
N/P Sales Income
50,000 105,000
G. Bisana, Capital Total Expenses
620,000 49,000
Questions:
1. How much is the total assets?
2. How much is the total liabilities?
3. How much is the total owner’s equity?
4. What is the accounting equation?
5. How much is the equation balance using the accounting equation?

Balances
I. Introduction
One fundamental of accounting is the accounts. Every account can
have an amount. The amount of an account can increase or
decrease. This representation of amount is known as the second
fundamental of accounting: balances.

II. Discussion
An entry refers to the representation of an increase or decrease in
an account. It can be used to record business transactions. Entries
mainly affect the balance.

There are two kinds of entries:

Debit Credit
Entry Entry
Balance refers to the amount in an account. It may also refer to the
equality of the sum of debit and credit net balances.

There are also two kinds of balances:

Debit Credit
Balance 7
Balance
 The difference between the debit and the credit balance is called the
net balance.

Entries and balances can be illustrated using a T-account.

ACCOUNT TITLE/NAME
Debit (Dr) Credit (Cr)
P XXX.XX P XXX.XX
Debit Entries XX.XX XX.XX Credit Entries
XXX.XX XX.XX
XXXX.XX
Debit P XXXX.XX P XXX.XX Credit Balance
Net P XXXX.XX
The Balance
amount of an account can increase or decrease due to entries.
These increases and decreases correspond to the debit and credit
entries.

Note: A debit entry does NOT always mean an increase in the

amount similar to a credit entry does NOT always mean a
decrease in the amount.

Accounts follow a rule based on what entry increases or decreases

them according to their five main classifications along with some
exceptions:
Account Type Increase Decrease Normal Net
Balance
Assets Debit Credit Debit
Contra-Assets Credit Debit Credit
Liabilities Credit Debit Credit
Owner’s Equity Credit Debit Credit
Drawings Debit Credit Debit
Income/Revenue Credit Debit Credit
Expense Debit Credit Debit

III. Activities
A. Determine the normal balance of the following accounts.
1. Cash 2. Accounts Payable

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3. Furniture and Fixtures 7. Delivery Truck
4. N. Laus, Capital 8. Accumulated Depreciation
5. Service Income 9. Advertising Expense
10. N. Lau
6. Accounts Receivable

CASH
Debit (Dr) Credit (Cr)
P 400,000.00 P 20,000.00
49,000.00 8,000.00
25,000.00 50,000.00
10,000.00 20,000.00
7,000.00
6,000.00
8,000.00

CASH
Debit (Dr) Credit (Cr)
P 400,000.00 P 20,000.00
49,000.00 8,000.00
25,000.00 50,000.00
10,000 20,000.00
7,000.00
6,000.00
8,000.00