Lesson 1: The Accounting Books On a balance sheet or in a ledger, assets equal liabilities

plus shareholders' equity. An increase in the value of

Accounting Books of Records assets is a debit to the account, and a decrease is a
 Accounting records are all of the documents credit. On the flip side, an increase in liabilities or
involved in preparing financial statements for a shareholders' equity is a credit to the account, notated
company. as "CR," and a decrease is a debit, notated as "DR."
 Certain regulatory bodies require companies to Using the double-entry method, bookkeepers enter
keep their accounting records for several years each debit and credit in two places on a company's
in the event that they need to be reviewed. balance sheet.
 Accounting records are often reviewed for Two Main Types of Accounting Books
audits, compliance checks, or other business- 1. General Journal
related necessities. - a chronological record (day-by-day) of business
 Types of accounting records include transactions. It is called “the book of original
transactions, general ledgers, trial balances, entry” because it is the accounting record in
journals, and financial statements. which financial transactions are first recorded.
ACCOUNTING CYCLE Journalizing – the system by which all business
transactions are recorded for your financial records.
Special Journal – To speed up and simplify the recording
process, most businesses make use of special journals.
Each special journal is designed to record a particular
type of transaction efficiently and quickly.
Examples:
1. Cash Receipts Journal
2. Cash Disbursements Journal
3. Purchase Journal
4. Sales Journal
A Journal should contain the following:
- Date
- Transaction/Description
- Debit Amount
- Credit Amount

2. General Ledger
 a book or file that bookkeepers use to record all
relevant accounts. The general ledger tracks five
prominent accounting items: assets, liabilities,
ACCOUNTING EQUATION owner’s capital, revenues, and expenses.
 Transactions that first appear in the journals are
subsequently posted in general ledger accounts.
Then, account balances are calculated and
transferred from the general ledger to a trial
balance before appearing on a company's
official financial statements.
Ledger Format

CREDIT AND DEBIT

T-Accounts  Cross Check
A general ledger is often called a T-Account because of  Time Deposit Account (or a Certificate of
its resemblance to the letter T. A T-Account is a Deposit Account)
simplified form of general ledger. A sample of a T-  ATM (Automated Teller Machine) Account
account is shown below:  Bank Statement
Savings Accounts
- Intended to provide an incentive for the
depositor to save money.
- Interest rate that is higher than a
checking/current account.
- Depositor can make deposits and withdrawals
using the form provided by the bank
Bank Deposit Slip
- Used to put in money to the depositors account
Information to be written in a deposit slip:
Normal Balance
- Account Name - this is the complete name of th
 In order to determine the ending balance of
e depositor. If it has a pass book, the account na
each account using the “T-account”, the
me is indicated on first page inside the passboo
beginning balance is plot in the appropriate
k.
debit or credit side, then total debits and credits
- Account Number - this is a unique identifier of t
are then determined.
he account maintained by the depositor.
 If the account has a beginning balance on the
- Date of Deposit - Type of Account
debit side, all the debits during the period is
added to the beginning then all the credits are Information to be written in a deposit slip:
deducted. There is a debit balance of the  Currency
account if the sum of the beginning balance and  Amount in words and in figures - the amount
the total debits exceeds the total credits. that the depositor wishes to put into his
The normal balances of these accounts are listed below: account. The amount to be deposited maybe in
form of cash or check.
A. Asset Accounts – Debit Balance; however, the
 If it is a cash deposit, the breakdown of the cash
normal balance of a contra asset account is
is usually listed in the deposit slip.
credit. In the above chart, the contra asset
 If it is a check deposit, the details of the checks
accounts are:
are indicated in the deposit slip.
Allowance for Bad Debts,
 for example: Issuing Bank, Address of the
Accumulated Depreciation
Issuing Bank, date of the check and the amount.
B. Liabilities – Credit Balance
C. Equity Accounts – Owner’s, Capital account has Withdrawal Slip
a normal balance on the credit side while the - Used to take out money from the depositor’s
Owner’s, Withdrawal account has a normal account
balance on the debit side. Information to be written in a deposit slip:
D. Income – Credit Balance  Account Name - the name of the depositor
E. Expenses – Debit Balance  Account Number - the unique identifier given by
When an account that normally has a credit balance the bank for every account maintained
actually has a debit balance, it may mean that an error  Date of the withdrawal
has occurred or that an unusual situation may exist.  Type of account - savings or current
 Currency
Lesson 2: Basic Documents and Transactions Related to Checking or Current Accounts
Bank Deposits  Money held under a checking account can be
Types of Bank Accounts withdrawn through issuance of a check
 Savings Accounts  Numerous withdrawals and unlimited deposit
 Bank Deposit Slip under this type of account is allowed.
 Withdrawal Slip  Interest rate for checking account is usually
 Checking or Current Accounts lower than a savings account.
 Check (Cheque)
  The account holder or depositor of a checking ATM – a 24-hour teller machine and the funds can be
account is normally provided at the end of the withdrawn anytime.
month a bank statement showing all the
deposits made, checks paid by the bank, and Bank Statement
the balance of the account.  Contain all the withdrawals, deposits and balanc
 The depositor is given easy access to the funds e of your account after every transaction
as compared to a savings account.  May also indicate bank charges that were deduc
Cheque (Check) ted by the bank automatically
 Document that orders a bank to pay a specific  Interest earned by the account is likewise reflec
amount of money from a person's account to ted
the person in whose name the cheque has been  The date column indicate the date the transacti
issued on was made.
 Type of bill of exchange developed as a way to  The check number indicates the details of the c
make payments without the need to carry large heck paid by the bank.
amounts of money  The transaction code is normally a bank code fo
 The drawer writes the various details including r the transactions.
the monetary amount, date, and a payee on the
cheque, and signs it, ordering his bank, known  The Debit column represents all charges or ded
as the drawee, to pay that person or company uction made by the bank to your account.
the amount of money stated.  The Credit column represents the deposits or ad
 The check number is usually indicated in the ditions to your account that was made by the ba
upper right portion of the check. nk.
 The following are the parties involved in a  The Balance column is the running balance after
transaction that uses check as medium of considering the effect of the transaction to your
exchange: account.
- Drawer, the person or entity who makes the Lesson 3: Bank Account
check The Nature of Bank Account
- Payee, the recipient of the money
A bank account is a financial account maintained by a
- Drawee, the bank or other financial institution
bank or other financial institution in which the financial
where the cheque can be presented for
transactions between the bank and a customer are
payment.
recorded.
Cross Check
- Deposit Accounts
 It is marked to specify an instruction about the - Current Accounts
way it is to be redeemed. - Loan Accounts
 Usually done by writing two parallel lines on the - Credit Card Accounts
upper left portion of the check.
Nature of a Bank Reconciliation Statement
 Cannot be encashed over the counter by the
- A statement which brings into agreement; the
payee.
cash balance per book & the cash balance per
 Should be deposited to the payee’s account
bank. The reconciliation is usually prepared
Time Deposit Account
monthly because the bank provides the
 Is held for a fixed-term and can be withdrawn depositor with the bank statement at the end
only after the lapse of the agreed period and by every month.
giving notice to the bank.
Common Reconciliation Items
 May be withdrawn also anytime however the
- A RECONCILIATION ITEM is the distinction
bank usually charges penalties.
between the general ledger balance and the
 Yield high interest.
source of documentation being contrasted.
Automated Teller Machine Account
Each reconciling item requires an explanation
 Withdrawals can be made through designated and must have supporting
machines documentation/evidence.
 Advantage of this account is that even if the
Reconciling Items Per Book
banks are closed, you can withdraw your funds
1. Debit Memo – deductions made by the bank to
the account of the depositor.
 2. No Sufficient Fund (NSF) Check – a check that the order and agreed upon terms of the
was dishonored and returned by the bank to purchase.
the person or company writing the check B. Delivery Receipts - A form prepared by the
because that account did not have enough seller, with a copy given to the buyer, to
funds. document the delivery of the items
3. Bank Service Charges – fees such as check ordered.
printing and processing that the bank deducts C. Official Receipts - used to document cash
from the depositor. transactions. The entity receiving the cash
4. Credit Memo – additions made by the bank to will prepare the official receipts (OR). The
the account of the depositor. entity paying will received the OR as
5. Book Errors – items erroneously recorded by evidence of payment made.
the company. D. Purchase/Sales Invoice - It contains
Reconciling Items per Bank information on the prices of the items
1. Bank Errors – Mis-recorded items or delivered and the terms of the purchase.
transactions by the bank This should be consistent with the
2. Deposit In Transit – The company's recorded information on the purchase order.
and collected quantity but not yet deposited or Steps in Accounting Practice Set
deposited after the cut off time of the bank. 1. Record the Business Transactions in a General
3. Outstanding Checks – An issued check of a Journal.
payee to the company but hasn't been 2. Post the Journal entries on general ledger
cashed/cleared by the bank. accounts.
CREDIT MEMOS 3. Summarize the ledger accounts and list the
are added to the book balance to correct the balances on a trial balance.
understand cash book due to unrecorded interest, 4. Record the necessary adjusting entries.
Income and Notes Receivable of the company. 5. Prepare the financial statements from the trial
DEBIT MEMOS balance.
This are deducted from the book balance to correct the 6. Prepare necessary closing entries and record on
overstated cash book balance due to unrecorded the post-closing trial balance.
Service Charge and NSF. 7. You may perform financial statement analysis of
- One of the most common reconciliation item is the completed financial statements.
Deposit in transit.
Lesson 4: ACCOUNTING PRACTICE SET Lesson 5: Income and Business Taxation
Business Forms – are used to document business Business Income - a type of earned income and is
transactions. It contains information relevant to the classified as ordinary income for tax purposes. It
transactions such as date of transaction, items bought encompasses any income realized as a result of an
or sold, price, tax and name of buyer and seller. entity’s operations.
Taxation - the process by which a government, through
Different Kinds of Business Forms its lawmaking body, imposes charges on its inhabitants
to raise money for public use.
1. INTERNAL BUSINESS FORMS
- Forms used only within the business. A record Purposes of Taxation
that is created and stored within a business. Primary Purpose - to raise revenue that will be used in
A. Purchase Request - to document the defrauding government expenses.
processes involve prior to sending a Secondary Purposes - used to achieve certain social and
confirmed order to the seller. economic objectives.
B. Check Vouchers - used to document the Nature of Taxation
disbursement process. 1. Inherent Power
2. EXTERNAL BUSINESS FORMS - forms used by 2. Legislative
both buyer and seller. those that are issued or 3. Subject to Constitutional and Inherent
given mainly to parties outside the business as Limitations
proof of a transaction done with the company. Taxation principles are the guidelines that a governing
A. Purchase Order - A form prepared by the entity should use when devising a system of taxation.
buyer and sent to the seller to document These principles include the following items:
  Broad Application The gross profit of companies can be calculated by
 Broad Tax Usage reducing the cost of goods sold from the entity’s
 Ease of Compliance Expenditure revenue.
 Matching Fairness in Application Revenue - It is the total sales proceeds that a company
 Limited Exemptions generates in a given period.
 Low Collection Cost Cost of Goods Sold - refers to the direct cost incurred
 Understandability for the production of goods.
These basic principles of a sound tax system include the Gross compensation income is defined as taxable
following items: income arising from an employer/employee relationship
Fiscal Adequacy – revenues should be adequate to and includes the following: salaries, wages,
sustain government spending. compensation, commissions, emoluments, and
Theoretical justice- taxes are fair and reasonable to the honoraria.
capabilities of the taxpayer to pay. - BUSINESS INCOME. It is an income generated by an
Administrative feasibility- tax legislation is enforced entrepreneur or by different professionals like lawyers,
efficiently and effectively, preventing future doctors, and accountants (professional income). They
complications and uncertainly on the aspects of tax- do not work as employees of other people; they were
paying citizens. so-called self-employed individuals.
An individual taxpayer deriving business income is
allowed to deduct from his/her gross business income,
Governing tax law in the Philippines is the National either one of the following:
Internal Revenue Code of 1997. The Bureau of Internal 1. Itemized deductions
Revenue (BIR) is the primary implementing agency of 2. Optional standard deduction (OSD)
this law. MIXED INCOME-. An individual taxpayer who
Taxation is the process by which the government receives both compensation and business income.
collects revenue in order to pay for its expenses. PASSIVE INCOME. An income generated by different
Income tax is defined as the tax on the net income or investments made by an individual (such as interest
the entire income realised in one taxable year. income, royalty income prizes and winnings, and cash
Who are required to pay income tax in the Philippines? or property dividend income). It will not be subjected to
(Section 23 of the National Internal Revenue Code the schedular rate anymore but to specific final tax
[NIRC] of 1997). rates that should be remembered.
Gross income is an individual total income before taxes The two most significant classifications of income
and another adjustments considered. Gross income taxpayers are individuals and corporations.
provides the starting point for determining the taxes an The original receipt or invoice copy shall be provided to
individual must pay. the purchaser at the time of the transaction. Receipts or
Given below are the formulas used for the computation invoices shall be kept for three years from the end of
of the gross earnings of the individuals and firms. the year of the transaction.
 For Individuals: Gross Income = Salary + Interest  12% of the gross selling price of the goods or
+ Dividends + Rent services, which is called the output VAT.
 For Companies: Gross Income = Revenue – Cost  VAT registered business is allowed to deduct
of Goods Sold any input VAT computed as 12% of purchases
For Individuals: The gross earnings can be evaluated by Every taxpayer must register once with the BIR and
aggregating the following components: obtain one (1) Tax Identification Number (TIN). A
 Salary or Wages taxpayer acquiring more than one TIN for
 Rent himself/herself is punishable by law through monetary
 Dividends fines or imprisonment. Tax evasion (tax dodging) is a
 Interest taxpayer who avoids paying taxes using illegal means
 Capital Gain or Loss (e.g., non-declaration of taxable income or under-
 Income from other Sources declaration). In contrast, Tax avoidance is a taxpayer
minimizing their tax exposure by legal means (e.g.,
For Companies: careful tax planning). These are violations of tax law
which are punishable by monetary fines or
imprisonment.