PREPARING AND
MAINTAINING
FINANCIAL
RECORDS AND
REPORTS
An entrepreneur’s growing concern is to continuously learn and
understand the activities of his or her business. The cash
movement, if properly recorded and kept, can clearly describe
the total business picture.
Bookkeeping can guide you in your tasks. The primary rule is to
understand the mechanics of financial records.
BOOKKEEPING
● The act of recording business and events in systematic
and chronological manner. The person involved in this task is
the bookkeeper. His main job is to record and process data in
the accounting system
The basic elements or values of accounting are assets, liabilities and
capital. These accounts provide an information on the financial
condition of the business. These are presented in the balance sheet
accounts. The usefulness of balance sheet accounts continues
throughout the life of the business and that their year-end balances are
forwarded to the next accounting period.
The other accounting elements are income and expenses. These
accounts are presented in the income statement accounts and its
usefulness is limited to the year when they are incurred. The year-end
balances are closed and not forwarded to the next accounting period .
ASSETS
Assets are properties or rights on properties owned by the business.
Examples of assets are:
1. Cash – includes currency or cash items on hand.
2. Accounts Receivable – are open accounts or those that are not
supported by promissory notes.
3. Notes Receivable – amount collectible that are evidenced by a
promissory note or a written promise to pay.
4. Merchandise – goods held for sale by trading concern.
5. Unused Supplies – bondpaper, paper, stationary and other supplies
purchased for use or are still unused.
ASSETS
Assets are properties or rights on properties owned by the business.
6. Land – land used by the business
7. Building – building owned and controlled and used by the business.
8. Office Equipment – typewritters, adding machines, calculators.
9. Store Equipment – cash registers, calculators
10. Machineries – machines, motors
11. Furnitures and Fixtures – tables, chairs, showcases and counters
LIABILITIES
Liabilities are debts or obligations of the business.
Examples of liability accounts are:
1. Accounts payable – amounts due to suppliers for the
purchase of goods or services on credit
2. Notes Payable – amounts due to the other parties when it is
evidenced by a promissory note.
3. Salaries payable – services rendered by employees but still
unpaid
4. Bank loans payable – obligations due to banks for loans
obtained
EQUITY
If the business owns or controls assets worth P20,000,000 and has debt
worth P15,000,000, the capital or owner’s equity is P5,000,000. Equity
is the difference between assets and liabilities. Terms used in reporting
the equity of an enterprise are owner’s equity in a sole proprietorship,
partners’ equity in a partnership and stockholders’ equity in a
corporation.
INCOME
Income refers to the earning of the enterprise. For example, Company
AA sold canned goods worth P3,000 and the rice worth P5,000. It also
earned P20,000 for renting an extra space to Donuts Company. These
amounts are considered as income of the enterprise.
An income account in a product concern may be named as
sales or revenues. Sales or revenues represent income from
the sale of merchandise.
The income accounts in a service concern may be named as:
1. Service income – represents charges to customers for services
rendered.
2. Professional income – charges to customers by professionals for
services rendered.
Ex: Legal fees income, accounting fees income, medical fees
income
3. Rent income – represents charges for the use of assets like
equipment and spaces in buildings
4. Repair income – represents charges to customers for repair services
rendered
5. Laundry income - represents charges to customers for laundry
services rendered
6. Transportation income - represents charges to passengers for
transportation services rendered
EXPENSES
The company has to spend in order to earn. These
spendings which will include costs of the merchandise
bought and sold, and other spendings incident to the
operations of the business, will normally reduce income.
They are often referred to as expenses.
Below are some examples of an expenses the business may
incurred:
1. Purchases – represent the original aquisition price of the good for
resale
2. Salaries Expense – represent the value of services rendered by
employees or laborers.
3. Rent expense – amount paid for the use of properties
4. Repairs or Maintainance Expense – amount paid to maintain
company assets in good working conditions
5. Transportation expense – amount paid for services or means of
transportation of goods to customers
6. Taxes and licenses expense – amount of taxes and other
licenses paid to the government
7. Depreciation expense – is the portion of the cost of a fixed
asstes that is charged or allocated as expense for the period
8. Supplies expense – amount of supplies used.
