Fundamentals of Bookkeeping

The Language of Accounting

Bookkeeping is the systematic recording of financial transactions. Every transaction tells a story — money in, money out, what was owed, what was earned. Your job as a bookkeeper is to tell that story accurately and completely.

The Accounting Equation

Everything in bookkeeping rests on one equation:

This is always true. If it's not true, something is wrong in the books. If someone puts ₱50,000 into a business, the business has ₱50,000 in cash (an asset) and the owner has ₱50,000 in equity. The equation balances.

Every transaction you record must keep this equation balanced. If you buy equipment for ₱10,000 cash, your equipment (asset) goes up by ₱10,000 and your cash (asset) goes down by ₱10,000. The equation still balances — total assets didn't change.

Double-Entry System

Every transaction affects at least two accounts. When you record a transaction, you enter it as a debit in one account and a credit in another. Total debits must always equal total credits.

Transaction Walkthrough: A Cash Sale

Let's walk through how a simple sale gets recorded:

1. A bakery sells ₱500 worth of bread for cash.

   The business receives ₱500 in cash and earns ₱500 in revenue.

2. Identify the accounts affected.

   Cash (Asset) increases by ₱500. Sales Revenue increases by ₱500.

3. Determine debit or credit.

   Cash is an asset — assets increase with a debit. Revenue increases with a credit.

4. Record the journal entry.

   Debit: Cash ₱500 | Credit: Sales Revenue ₱500. Total debits (₱500) = total credits (₱500). The equation stays balanced.

Now let's try a more complex one — buying inventory on credit:

1. The bakery buys ₱3,000 worth of flour on credit (not paid yet).

   The business gains ₱3,000 in inventory and owes ₱3,000 to the supplier.

2. Identify the accounts affected.

   Inventory (Asset) increases by ₱3,000. Accounts Payable (Liability) increases by ₱3,000.

3. Determine debit or credit.

   Inventory is an asset — increase with a debit. Accounts Payable is a liability — increase with a credit.

4. Record the journal entry.

   Debit: Inventory ₱3,000 | Credit: Accounts Payable ₱3,000. Balanced.

Accrual vs. Cash Accounting

Cash basis: Record income when you receive the money and expenses when money leaves your bank account. Simple, but can be misleading — you might have a great month on paper because a big payment came in, while sales were actually slow.

Accrual basis: Record income when it's earned (even if not yet paid) and expenses when they're incurred (even if not yet paid). More accurate picture of business health. Most businesses use accrual, and QuickBooks Online supports both.

Key Bookkeeping Terms

• Journal entry: The record of a single transaction showing debit and credit amounts, date, and description.
• General Ledger: The master record of all accounts and their balances. Every journal entry flows into the ledger.
• Trial Balance: A list of all accounts and their balances to verify that total debits equal total credits. If they don't, there's an error.
• Chart of Accounts: The complete list of all accounts used by a business — the table of contents for the books.
• Reconciliation: Matching your records to an external source (like a bank statement) to verify accuracy.
• Accounts Receivable (A/R): Money owed to the business by customers who haven't paid yet.
• Accounts Payable (A/P): Money the business owes to suppliers or vendors.