The document outlines the fundamentals of bookkeeping, including the three elements of a business entity: assets, liabilities, and owner's equity. It describes the bookkeeping cycle, the double entry system, and the process of journalizing transactions, posting to ledgers, and preparing financial statements such as income statements and balance sheets. Additionally, it covers the importance of trial balances, adjusting entries, and closing entries to ensure accurate financial reporting.

1. Bookkeeping
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2. Elements of A Business Entity
• In bookkeeping a business is considered to have 3 elements. These
are It`s
1. Assets - Value of all which are owned
2. Liabilities - Value of all which are owed
3. Owner`s Equity - Value of It`s Net Worth
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3. Transactions of business
• Exchange of products or services is referred as a transaction.
Transactions change elements of businesses.
Example- Tom & Company borrows $1000 to from ABC Bank
Result of This Transaction to Tom & Co is
Cash Asset Increase by $1000
Bank Loan Liability Increase by $1000
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4. What is Bookkeeping
• Bookkeeping is the systematic way of recording financial transactions
of a business.
• In recording the changes to Assets, Liabilities, Owner`s Equity are
considered.
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5. Elements of Bookkeeping
• Double Entry System
• Source Documents
• Journal/The day book
• Ledger
• Trial Balance
• Financial Statements
• Post Closing Trial Balance
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6. Double Entry Bookkeeping System
• Double Entry Bookkeeping Method in bookkeeping
Identifies dual affect of each transaction to assets, liabilities or
owner's equity and record it in books.
• Rules of Double Entry Bookkeeping system
Increase In Asset and Expenses- Debit
Decrease In Asset and Expenses-Credit
Increase In Liability, Owner`s Capital and Sales- Credit
Decrease In Liability, Owner`s Capital and Sales- Debit
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7. Bookkeeping Cycle
• Journalize transactions from source documents using double entry
system
• Post to ledger
• Prepare Trial Balance, & do Adjustments
• Prepare Financial Statements
• Prepare Post Closing Trial Balance
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8. Journalize Transactions from Source
Documents
• Source Documents
Original record containing the details to substantiate a transaction
entered in an accounting system.
Example - Purchase Invoice, Sales Receipt, Credit Note, Debit Note
• Journal
Journal is a the book of original entry. And the transactions are
journalized as soon as they are occurred.
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9. Journal
• A typical format of a journal is shown below. Business entity can
specialize and keep separate journals for separate transactions as
well.
Journal Page No 1
Date Account Title PR Debit Credit
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10. Journalize transaction
• Example - Tom & Company Sales goods for $1000 on 02nd February
2017
• Result of this transaction is, Company`s Cash Asset increases and
Sales Income Increases by $1000.
• Applying rules of double entry to this transaction will Debit Cash and
Credit Sales.
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11. Journalized Transaction
Journal Page No 1
Date Account Title PR Debit Credit
2017-
02 2 Cash 1,000
Sales Account 1,000
Sales Receipt No XXX
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12. Post to Ledger
• At the end of each day the bookkeeper transfer the entries from the
journal to the ledger. This is referred to as posting to ledger.
• The ledger consist separate accounts for all assets, liabilities, owner`s
equity, Income and Expenses. Collection of those accounts are called
the ledger.
• A ledger account has two sides Left and the right. Left side is for
debut transaction and right is for credit transactions.
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13. Posting to ledger
No1
2017-
02 1 Sales 1 1000
No2
2017-
02 1 Cash 1 1000
Cash Account
Sales Account
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14. Posting to ledger
Journal Page No 1
Date Account Title PR Debit Credit
2017-
02 2 Cash 1 1,000
Sales Account 2 1,000
Sales Receipt No XXX
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15. Prepare Trial Balance
• At a considered date the bookkeeper list down all the balances of the
ledger accounts to a report. This is called the trial balance.
• To prepare trial balance the bookkeeper go through all the ledger
accounts and pencil footing the difference between credit & Debit
sides.
• These difference will list down in the Trial Balance as debit and credit
balances.
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16. Trial Balance
Cash 1 1000
Sales 2 1000
Sales Returns 3 10
Purchases 4 100
Purchase Returns 5 10
Inventory 4 900
Equipments 5 200
Drawings 6 20
Selling Expenses 7 10
Creditors 8 1000
Owners Equity 9 230
2240 2240
Tom & Company
Trial Balance
As at 28.02.201X
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17. Trial Balance
• The Totals of Debits and Credits of the trial balance should equal.
Then the Trial balance is In balance
• Trial balance may Out of balance.
• A trial balance may out of balance due to errors in posting.
• Example- Missing posting entry to one ledger account
Debit both accounts
Debit and Credit different amounts
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18. Trial Balance
• When trial balance is out of balance the bookkeeper used to re-check
the debit and credit totals. If any totaling mistake has happened then
it is sorted.
• If it is still out of balance the bookkeeper used to go through the
pencil footings, journal and posting entries to locate any errors.
• If any error is met the bookkeeper needs to correct it to get the trial
balance in balance.
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19. Adjusting entries
• Adjusting entries are Journal entries used to correct errors in posting
• And used to record the physical inventory balance at the end of
period.
• Etc.
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20. Adjusting Entries
• Examples of adjusting journal entries are shown below
Journal Page No 1
Date Account Title PR Debit Credit
2017-
2 28 Adjusting Entries
cash 1 10
Sales 2 10
Error corection
2017-
2 28 Revenue and epenses summary 10 300
Inventory 4 300
Recording physical inventory
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21. Adjusted Trial Balance
• After making adjusting entries in Journal and posting the Adjusted
Trial balance can be prepared as shown below.
Cash 1 1000
Sales 2 1000
Sales Returns 3 10
Purchases 4 100
Purchase Returns 5 10
Inventory 4 600
Equipments 5 200
Drawings 6 20
Selling Expenses 7 10
Creditors 8 1000
Owners Equity 9 230
Revenue & Expence
Summary 10 300
2240 2240
Tom & Company
Adjusted Trial Balance
As at 28.02.201X
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22. Financial Statements
• Consists
The Income Statement,
Capital Statement,
Balance Sheet,
Let`s go through one by one.
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23. Income Statement
• Income statement is prepared for measure the profitability of the
business over a period.
• Income statement is prepared in report form.
• Income and Expenses account balances are considered in preparing
income statement.
• Income statement shows the Gross profit and the Net profit
• Gross profit is calculated by deducting Cost of goods sold from Sales.
• Net profit is calculated by deducting other expenses from Gross profit
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24. Income Statement
• Typical form a Income Statement is shown below.
Sales 1,010
Sales Returns (10) 1,000
opening inventory 100
(+)purchases 100
(-)Purchaes Returns (10) 90
190
(-)Closing Inventory 40
Cost of Goods Sold 150
Gross Profit 850
(-)Selling & Other Expenses (10)
Net Profit 840
Tom & Company
Income Statement
for the period ended in 28.02.201X
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25. Capital Statement
• Capital Statement is prepared to report the changes during the period
to owner`s equity accounts of a company.
• To prepare capitals statement, balance of accounts related to owner`s
equity are considered.
• And the Net profit or loss occurred during the period will be
considered as well.
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26. Capital Statement
• Typical format of a Capital Statement is shown below.
Opening Capital 150
(+) Additional Investment 80
230
(+) Net Proft of the period 840
Capital after net profit 1,070
(-)Drawings (20)
Closing Balance as at 28.02.201X 1,050
Tom & Company
Capital Statement
for the period ended in 28.02.201X
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27. Balance Sheet
• In order to report the financial condition at a certain date The balance
sheet is prepared.
• The assets, Liabilities and the Owner`s Equity related accounts
balance are listed to prepare the balance sheet.
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28. Balance Sheet
• A typical form of a balance sheet is shown below.
Assets
Cash in hand 1,010
Closing Inventory 40
Equipments 1,000
Total Assets 2050
Liabilities
Creditors 1000
Total Liabilities 1000
Owner`s Equity 230
(-)Drawings (20)
210
(+)Net Profit 840
1050
Total Liabilities & Owner`s Capital 2050
As at 28.02.201X
Tom & Company
Balance Sheet
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29. Revenue & Expense Summery
• At the end of a accounting period Revenue & expense summary is
prepared to close all income and expenses.
• Closing entries will be made in general journal transferring all income
and expense balances to revenue and expense summary.
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30. Revenue & Expense Summary Closing Entries
Journal Page No 12
Date Account Title PR Debit Credit
Closing Entries
2017-Feb 28 Sales 2 1,010
Purchase Returns 5 10
Revenue & Expense Summary 10 1,020
closing all Income related account balance
2017-Feb 28 Revenue & Expense Summary 10 120
Purchases 3 100
Sales Return 4 10
Selling & Other Expenses 7 10
closing all Expence related account balance
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31. Closing Revenue & Expense Summary Account
• At the end of accounting period the balance of the revenue &
expense summary which equals to the profit or loss of the period will
be transferred to capital accounts.
• With closing revenue & expenses summary, the Balance of the
drawing account will be transferred to capital account as well
• A journal entry will be made to get capital account up-to-date
• .
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32. Closing Revenue & Expense Summary Account
Journal Page No 12
Account Title PR Debit Credit
Closing Entries
28 Revenue & Expense Summary 10 840
Capital Account 9 840
Transfer profit to capital accounts
28 Capital Account 9 20
Drawings Account 6 20
Transfer profit to capital accounts
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33. Post-Closing Trial Balance
• After closing all temporary accounts (Income, Expenses and Drawing
Accounts) the remaining Assets, Liabilities and Capital Accounts will
be balances & Ruled. Balance & Ruled account is shown below.
• And the all the balances of them will be listed on a trial balance.
Cash Account No1
2017-
Feb 1 Sales 1 1000
2017-
Feb 28 Sales 8 10
2017-
Feb 28 Balance 1010
2017-
Feb 28 1010
2017-
Feb 28 1010
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34. Post-Closing Trial Balance
Cash In Hand 1 1010
Inventory 4 40
Equipments 5 1000
Creditors 8 1000
Capital Account 9 1050
2050 2050
Tom & Company
Post-Closing Trial Balance
As at 28.02.201X
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