Bookkeeping Basics: Part 1♥

For those who don't really know me, I have been in the corporate world for almost 30 years (in the accounting department).  Now do the math you can easily calculate my age (haha).  Anyway, since a lot of people are into business nowadays, I just want to share something on how to record your transactions.  

First, what does "Bookkeeping" mean.. Bookkeeping is the systematic recording of a company's transaction on a regular basis. 

There are 5 types of Accounts in Accounting : Assets, Liabilities, Capital, Income and Expense.  Let's start with the three Balance Sheet accounts : Assets, Liabilities and Capital. 

Remember this formula : ASSETS - LIABILITIES = CAPITAL

ASSETS : are things of value owned by the business.  It includes cash on hand and in bank, properties such as furniture and fixtures, equipment, motor vehicle and goods or services on credit (owed by his customers).  In recording : Increase in Assets - Debit and Decrease in Assets - Credit.

Example 1:  The company purchased a set of computer for P24,000.00.

Example 2:  Received payment of P50,000.00 from customer on sale of goods on account.

Journal entry:

                        Cash  (Debit)                                              P50,0000.00

                                  Accounts receivable (Credit)                                       P50,000.00

LIABILITIES: are the debts owed (pakakautang) by the company. These are money owed by the business to it's suppliers or creditors, bank loans and overdrafts.  In recording : Increase in Liabilities - Credit and Decrease in Liabilities - Debit.

Example 1:  The company purchased a van for P500,000.00 on credit.

Journal entry:

                        Van  (Debit)                                              P500,0000.00

                                  Accounts payable (Credit)                                       P500,000.00

Example 2:  Paid P25,000.00 to creditors.

Journal entry:

                        Accounts payable  (Debit)                        P25,0000.00

                                  Cash (Credit)                                                           P25,000.00

CAPITAL (EQUITY) : is the value of the investment in the business by the owner/s.  Often described as the owner's interest because it is the part of the business that belongs to the owner/s.

Example 1:  The owner invested P1,000,000.00 to start a new business.

Journal entry:

                        Cash  (Debit)                                              P1,000,0000.00

                                  Owner's Equity (Credit)                                       P1,000,000.00

Example 2:  The owner made additional investment  of P100,000.00 to the company.

Journal entry:

                        Cash  (Debit)                                              P 100,0000.00

                                  Owner's Equity (Credit)                                       P100,000.00

***Please note that the Debit and Credit amounts are balance.  I remember during my high school days my bookkeeping teacher taught us to make T-accounts to post the journal entries that we recorded.  So what is a T-account?  A T-Account is the graphic representation of the general ledger.

Example : Reference transaction see example 1. 

Assets, Liabilities and Capital are Balance Sheet accounts. What is a Balance sheet?  A Balance Sheet is a Financial statement that shows the financial position of a business at a specific point in time.

Refer to this accounting equation: 

ASSETS = LIABILITIES + CAPITAL

ASSETS - LIABILITIES = CAPITAL

Hope you learn something from this post. Wait for the second part the Income and Expense accounts. 

xo,

Chiq♥