Information Needed in Starting Bookkeeping

The purpose of recording business transactions and events is to determine the outcome of the operations of the company for a certain length of time.

The business transactions and events transpired during a certain period may cause increases and decreases in the capital account.

The diverse and various business affairs and activities mostly revolved around the capital account.

Business performance may result to profit which consequently increases capital.

Or, operations may result to losses which subsequently decreases capital.

In order to determine if there are increases or decreases in capital, there's must be a starting point where to compare or there must be a basis of comparison.  Such basis is the initial capital invested by the proprietor at the beginning.

Thus, it is necessary to determine the capital at the time the accounting records started.

There are three instances where a bookkeeper may ascertain or establish the capital at the time of starting a set of bookkeeping and accounting records.

First Instance

The business owner invests a certain amount of cash, such cash is his capital.  Say, if the proprietor puts in P1,000,000.00 cash in his business, the capital of the owner is also the same amount, the P1,000,000.00.  

Second Instance    

The business had already been in operations and may have accumulated various assets in the past. 

For example, the owner has already accumulated the below assets in his business which had already been in operations in the past. 

The capital of the proprietor is the total values of all the assets above, which amounts to P5,080,000.00.

Third Instance