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L1:Introduction to Bookkeeping and Accounting


! BOOKKEEPING - The art of proper and systematic identification and recording business transactions in the maintenance of book accounts (such as journal, ledger, cash, and subsidiary books.)


- It is often routine and clerical in nature. The activities of book-keeping include recording in the journal, posting to the ledger and balancing of accounts.

  1. PROCESS OF BOOKKEEPING

  • Identifying accounting transactions (which may be money or money worth transactions with documentary evidence. Credit transactions are money worth transactions)

  • Records Initial accounting transactions.

  • Preparation of ledger accounts.

  • Preparation of trial balance.

  1. Objectives of bookkeeping

  • to have a permanent record of all the business transactions.

  • to keep records of income and expenses in such a way that the net profit or net loss may be calculated.

  • to keep records of assets and liabilities in such a way that the financial position of the business may be ascertained.

  • to know the names of the customers and the amount due from them.

  • to know the names of suppliers and the amount due to them.

  • to have important information for legal and tax purposes.

! ACCOUNTING - system of recording, classifying, analyzing, and summarizing financial transactions; this includes both money coming into the business and money going out of the business

The American Accounting Association defines accounting as “the process of identifying, measuring and communicating economic information to permit informed judgements and decisions by users of the information”.

  1. MAIN OBJECTIVES OF ACCOUNTING

  •  To maintain accounting records.

  • To calculate the result of operations i.e. to calculate profit or loss 

  • To ascertain the financial position

  •  To communicate the information to users

L2:Accounting Cycle

The Accounting Cycle - The accounting period of a business is separated into activities that help the business keep its accounting records in an orderly fashion.

! STEP 1 – ANALYZING BUSINESS TRANSACTIONS WITH THE USE OF COLLECTING & VERIFYING SOURCE DOCUMENTS - Analyzing information from the source documents to determine the debit and credit parts of each transaction.

  • You may not be given a description of the transaction, but must find the information off of the source document.

Source Document – a paper that is prepared as evidence of a business transaction.

  • Invoice – lists specific information involving the buying or selling of an item on account.

  • Receipt – a record of cash received by the business.

  • Memorandum – a brief written message that describes a transaction that takes place within a business. (if no other source doc. exists.


! STEP 2 – RECORDING BUSINESS TRANSACTIONS IN A JOURNAL 

  • Journal – a record of the transactions of a business.

  • Kept in chronological order

  • Journal - a record of transactions

  • Journalizing – the process of recording business transactions in a journal.

  • AKA Record of Original Entry – it is where transactions are first entered in the accounting system.

! STEP 3 – POSTING TO THE LEDGER

  • Posting – the process of transferring information from the journal to individual general ledger accounts.

  • General Ledger – a permanent record organized by account number.

  • Shows changes in an account’s balance.

! STEP 4 – PREPARE A TRIAL BALANCE

  • Trial Balance – a list of all the account names and their current balances.

  • Proving the Ledger – comparing the total of debits to the total of credits to see if they equal.


! STEP 5 – ADJUSTING ENTRIES

Adjusting entries are changes to journal entries you’ve already recorded. Specifically, they make sure that the numbers you have recorded match up to the correct accounting periods.

! STEP 6 – ADJUSTED TRIAL BALANCE

Adjusting entries are changes to journal entries you’ve already recorded. Specifically, they make sure that the numbers you have recorded match up to the can adjusted trial balance lists the general ledger account balances after any adjustments have been made. These adjustments typically include those for prepaid and accrued expenses, as well as non-cash expenses like depreciation.correct accounting periods.

! STEP 7 – PREPARE FINANCIAL STATEMENTS

  • Financial Statements – summarize the changes resulting from business transactions that occur during an accounting period.

         a. Income Statement

         b. Balance Sheet

         c. Statement of Owner's Equity

         d. Statement of Cash Flows

! STEP 8 – CLOSE ENTRIES ACCOUNTS

Closing Entries – journal entries made to close, or reduce to zero, the balances in the temporary accounts and to transfer the net income/loss for the period to the capital account.

! STEP 9 – POST-CLOSING TRIAL BALANCE

Prepared to make sure total debits equal total credits after the closing entries are posted.

L4: 5 Major Accounts

  1. 5 MAJOR ACCOUNTS 

  1. Assets - anything that has current or future economic value to a business. Essentially, for businesses, assets include everything controlled and owned by the company that's currently valuable or could provide monetary benefit in the future.

Current Assets - an account listed on a balance sheet that shows the value of the assets owned by a company that can be converted to cash through liquidation, use, or sales within one year. 

  • cash/cash equivalents

  • Accounts receivable

  • Prepaid expenses

  • Raw materials

  • Inventory

  • Short-term investments 

Non-Current Assets - are a company's long-term investments that are not easily converted to cash or are not expected to become cash within an accounting year.

  • Land  

  • Buildings 

  • Factories

  • Furniture

  • Equipment

  1. Liabilities - are what a business owes. It could be money, goods, or services. They are the opposite of assets, which are what a business owns. Businesses regularly owe money, goods, or services to another entity.

Current Liabilities - Current liabilities (also called short-term liabilities) are debts a company must pay within a normal operating cycle, usually less than 12 months (as opposed to long-term liabilities, which are payable beyond 12 months).

  • Cash dividend payable / Tax payable

  • Accrued expenses / Unearned payable

  • Short-term notes payable / Account payable

Non-Current Liabilities - are the debts a business owes, but isn't due to pay for at least 12 months. They're also called long-term liabilities. Although payment may not be due within a year, it's important a business doesn't overlook its non-current liabilities.

  • Long term borrowings 

  • Deferred tax liabilities 

  • secured/unsecured loans

  1. Owner's Equity/Capital - is the amount of money that a company's owner has put into it or owns. If it were a sole proprietorship, the term OWNER’S EQUITY would be more appropriate. On the other hand, a partnership’s capital can be referred to as PARTNERS’ EQUITY and for a corporation , STOCKHOLDERS’ EQUITY or SHAREHOLDERS’ EQUITY

  1. Revenue/Income - the value of all sales of goods and services recognized by a company in a period. Revenue (also referred to as Sales or Income) forms the beginning of a company's income statement and is often considered the “Top Line” of a business.

  1. Expenses - is a cost that businesses incur in running their operations. Expenses include wages, salaries, maintenance, rent, and depreciation. Expenses are deducted from revenue to arrive at profits.

II. Chart of Accounts

- A chart of accounts (COA) is an index of all the financial accounts in the general ledger of a company. In short, it is an organizational tool that provides a digestible breakdown of all the financial transactions that a company conducted during a specific accounting period, broken down into subcategories.

III. Hand Gesture 

Assets and Expenses fingers are upward meaning they have a positive value, on the other hand the Liabilities, Owner’s Equity and Revenue are downward meaning they have a negative value.

Liabilities, Owner’s Equity and Revenue fingers are upward meaning they have a positive value, on the other hand the Assets and Expenses are downward meaning they have a negative value.

analyze the movement of the accounts stated and do the hand gesture of the correct entry whether it is a Debit or a Credit entry.

Application Task

5. Decrease in Assets

6. Increase in Liabilities

7. Increase in Expenses

8. Decreases in Owner’s Equity

1. Increase in Assets

2. Decrease in Liabilities

3. Increase in Revenue

4.Increase in Owner's Equity

L4: Business Transactions

  1. Business Transactions

  • Analyze the transactions

  • Identify the sub-categories and from what major account it belongs

  • Determine whether it has a positive or negative value

  • Identify whether it is in debit or credit entry



L5: Journal Entry


  1. Journal entry

  • Journal is a historical record of business transactions or events.

  • Journal is a primary book for recording the day to day transactions in a chronological order i.e. the order in which they occur.

  • This is called the book of first entry.


JOURNAL ENTRY - means recording the business transactions in the journal.

  • The transaction is analyzed to determine which account is to be debited and which account is to be credited.

JOURNALIZING is the process of recording journal entries in the Journal.

  • It is a systematic act of entering the transaction in a day book in order of their occurrence i.e., date-wise or event-wise.

Resources - Transaction / Journalizing

L6: Ledger


A T-account is a tool used within a ledger to represent a specific account, while a ledger is a complete record of all financial transactions for a company.

A General Ledger is a complete record of all financial transactions for a company, organized by account.


A report which contains a systematic record of increase or decrease in an item during a particular period with four parts:


1. Title name of the accounts and transactions

2. Left hand side which is usually called Debit side

3. Right hand side which is usually called Credit side.

4. The Balance showing the remaining balance of the account.





L7:Trial Balance


  • Trial balance is a list of debit and credit balances of all ledger accounts. It is prepared at the end of an accounting period.


  • Prepared in a statement from which shows debit and credit therefore it is also called as a statement of balanced


  1. Objective of Trial Balance

  • Checking of arithmetical accuracy of the ledger accounts


  • Locating errors 


  • Facilitate preparation of final accounts


  • It helps to ascertain arithmetical accuracy of the book-keeping work done during the period


  • It supplies in one place ready reference of all balances in ledger accounts


How is an error in trial balance located?

  • Difference of a particular amount can be detected by finding out if the same balance pertains to a ledger account


  • If the difference can’t be located, the difference in treated as suspense account


  • Suspense account is later on adjusted till it nullifies on finding out the errors



  1. Composition


Header - consists of the name of entity or company, trial balance (name of the statement), and the date of the reporting period (always the end of the month)


Account titles - these are the accounts shown on your general ledger (ALORE)


Ledger folio - this is the reference number from the ledger accounts.


Debit column - the accounts balance in the ledger when it results to a debit amount.


Credit column - the account balance in the ledger when it results to a credit amount


Total - total of the amounts in the debit / Credit. The two should be equal or balanced.