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

Introduction to Record-Keeping or Bookkeeping

Regardless of forms of business entity an organization belongs, the entity must write financial entries and keep financial records on its own. One of the main reason is that in the Philippine settings businesses are required to file tax returns and  pay taxes dues aside from other government compliance requirements such as local taxes and municipality permits, sss premium contributions, phil-health premium contributions, pag-ibig or hdmf contributions, etc.  What the entity files or pays to the government agencies and bureaus are based on the financial records it writes and keeps.

Record keeping : Bookkeeping  

In businesses, financial transactions are recorded. The tool where the financial records of the business are written and kept are called Books Of Accounts.  The manner the entity records its financial transactions is called record keeping or bookkeeping.

Bookkeeping has two kinds, the Single-Entry Bookkeeping and Double-Entry Bookkeeping

Single-Entry System

Single-Entry refers to the incomplete recording of transactions. In its simplest form, only one record maybe kept where all the transactions are narratively entered or posted. Thus, it does not provide properly analyzed transactions and can not recognized the effects of transactions all the time. As a consequence, preparers of financial statements are faced with some problems reconstructing the accounts to properly prepare financial statements and determine the income or loss. 

Double-Entry System

Double-Entry refers to the dual-effect that each transaction has on the accounting equation.  Under this system, all the transactions are assumed to have a dual-effect or two-fold effect on the accounting values and at least affects two accounts.    

Accounting values: Value Received and Value Parted With  

Meaning, in the Double-Entry System, it's like a relationship, there's a give and take.  We give the value parted with, and we take the value received. 

What we must know in record-keeping or bookkeeping?
Click each topic to read the explanation/discussion

• Economic Events

• Business Transactions

• Source Documents

• Value Received and Value Parted With

• Monetary Equivalent of the value received and the value parted with

• Accounting Elements

• Accounts

• Accounting Equation

• Debit and Credit

• Normal Balances of Accounting Elements / Accounts

• Transaction Analysis

• Journal Entries and Journalizing 

• Books of Original Entry : General Journal and Special Journals

• Posting

• Books of Final Entry :  Ledgers

• Trial Balance

• Financial Statements

Researched by:

ACCOUNTING vs BOOKKEEPING

ACCOUNTING vs BOOKKEEPING

Accounting is the art and science of analyzing, recording, classifying, and summarizing, in a significant manner and in terms of money, transactions and events which are, in part at least, of financial character and, analyzing and interpreting the results thereof.

Notice the definition mentioned the recording aspect of the business transaction. This is known as the Bookkeeping. Bookkeeping is the process of recording systematically the business transactions in the order of their occurrence.

Bookkeeping is the groundwork of accounting.  It is the start and necessary phase of Accounting. 

However, Bookkeeping does not confine to recording of business transactions alone. Bookkeeping also covers classifying properly the business transactions. And, at the end of the cycle period, included in the bookkeeping is summarizing the recorded and properly classified business transactions for a given accounting period. 

Accounting completes the periodic works by preparing trial balance and financial statements.  And, consequently, the analysis and interpretation of financial statements are done.

DISTINCTION BETWEEN BOOKKEEPERS AND ACCOUNTANTS

Bookkeepers are those who do the jobs of bookkeeping while an accountant aside from possessing complete knowledge of the bookkeeping activities, the accountant must possess expertise or knowledge in Financial Reporting Standards (FRS) compliance. FRS is the standards set by authorized accounting body to be followed and complied with by all those in the accounting field.  Likewise, business organizations must follow and comply with FRS in reporting and valuation of accounts as reported in their accounting records or books.  And, the accountants have the expertise in detecting faulty recording and classifying of business transactions or if the recording and classifying business transactions are not in compliance with FRS.  In addition, the functions of analyzing and interpreting the financial statements are part of Accounting. 

References : Introduction to Accounting by Adriano, Lim