Basic Bookkeeping

Basic Bookkeeping
What is your level of expertise?
Matrix
Debits and credits
Assets = liabilities + equity
Do you use accounting software?
What do you want to learn?
Why should you keep a set of books?
Running out of the checkbook

Need to track how your company is doing
Company will hit a block where you wont grow anymore
GAAP
Use of accounting software, such as QuickBooks or
Peachtree
Cash vs. accrual accounting
Most businesses start with cash accounting. You record

income and expenses as you receive or pay out the cash.
Under accrual accounting, you measure the income or

expense when accrued. Examples are accounts receivable
and accounts payable. You would record the sales as
receivable when recognized. You would record the bills as
expenses when received or incurred by you.
Companies that have inventory are supposed to use accrual

accounting.
Generally accepted accounting principles
Bookkeeping is double entry. Enter a journal entry on the

left side and enter a journal entry on the right side.
Assets = liabilities + equity formula

What is a T-account?
Debits = credits
Debits are the left side
Credits are the right side
Examples of debiting and crediting an account

You purchase a rake for $25 for your business.
Debit Tool Expense for $25
Credit Cash for $25
What is the Chart of Accounts?
Accounts examples such as cash, accounts payable,

accounts receivable, payroll, payroll taxes, long-term
loans, owners equity, telephone expense, utility expense,
income, cost of goods
Five major account groups:
Assets
Liabilities
Equity
Income
Expense
Assets
Assets include both current and long term assets

Current assets are cash, checking accounts, accounts
receivable, and inventory
Long term assets are notes receivable, tools and
equipment, land, buildings
Liabilities
Liabilities include both short-term and long-term.

Short-term liabilities are defined as amounts that are due
within one year. Examples of short-term liabilities are
accounts payable, payroll tax liabilities, and the portion of
the long-term debt that is owed for that year.
Long-term liabilities include notes payable, bonds payable,
loans.
Equity
Equity accounts represent what the owners have put into

the company as well as the cumulative net earnings of
the company.
Although not making logical sense, the equity account
appears on the right side of the assets = liabilities +
owners equity equation.
Owners equity consists of both Owners Contributions
and Owners draw.
Retained earnings includes what the company has earned
over the years.
Income
You may want to set up several income accounts if
you have different streams of income from different
work activities. The income and expense total net
earnings is forwarded into the balance sheet.
Expense
You can create a number of different expense
accounts so that you can properly track your costs of
your business. Some expenses are recurring on a
monthly basis, e.g. telephone use while other
expenses, such as the purchase of tools or repair of
equipment will vary.
Practice your understanding of a T-account
Arrow Manufacturing paid their telephone expense of $95.

Arrow Manufacturing paid their utility expense of $125.
Arrow Manufacturing paid their monthly rent of $800.
Arrow Manufacturing purchased new equipment for
$2,500. The firm paid the new tools in cash.
Arrow Manufacturing purchase new equipment for
$10,000 on credit.
Answers for the T-Accounts
General Journals
Cash Journal
Sales Journal
Accounts Receivable Journal
Expense Journal
Journals are used to enter financial data. You can also set
up many other subsidiary journals. Were just going to
deal with these four journals. You will be analyzing
these transactions on the following pages and deciding
which journal to debit and which journal to credit.
Setting up the Journals for Broken Pots R Us
Write these names on the separate journals

Sales Journal Entitle Broken Pots R Us
Cash Journal - Show a beginning balance of $175
Expense Journal
Accounts receivable Journal
Write DR in Column 1 and CR in Column 2 for each

journal.
Analyze the following business transactions
March 2 - Company sells $200 of pottery plates and is
paid in cash immediately.
March 4 - Company issues check #101 for an amount of
$35 to purchase clay from Clay Biz.
March 6 Company issues check #102 in the amount of
$45 to pay a telephone bill owed to Qwest.
March 8 - Company sells $75 of pottery cups and is paid
in cash immediately.
March 9 - Company issues check #103 in the amount of
$95 to pay for a vending booth at the AEO conference.
$50 for advertising in the Eugene Weekly.
March 11 Company sells $125 of pottery plates on credit
to Sampson Company that will pay in April.
$30 for glazing chemicals to Dow N Out Chemical .
March 20 Company sells $55 of pottery salad bowls and
is paid in cash immediately.
April 2 Company sells $65 of pottery cups on credit to
Blue Sky company that will pay later in the month.
April 5th - Company receives payment of $125 from
Sampson Company for payment of the pottery plates.
Total up the debits and credits for each of the journals.

(You can load up the calculator on your computer by going
to Programs / Accessories / Calculator).
Create an Income / Expense statement
Set up an Income and Expense Statement on the back side
of one of the ledgers for the month of March. You will be
looking at only the transactions completed for March
How much total sales for March?
How much expenses for March?
What is the balance at the end of March in the Accounts
Receivable journal?
What is the balance at the end of March for the Cash
Journal?
Set up two new journal accounts
Equity Journal
Accounts Payable Journal
Both of these journals are on the right side of the equation

of Assets = Liabilities + Equity
April 10th You as the owner of Broken Pots R Us places
$500 in the business checking account.
April 12 You purchase $125 of office supplies on credit
from Office Max.
April 16 - Company issues check #106 for an amount of
$105 for glazing chemicals to Dow N Out Chemical .
April 19 Company sells $95 of pottery cups and is paid in
cash immediately.
April 22 Company sells $65 of pottery cups on credit to
Blue Sky company that will pay later next month.
April 28 Because of your improved credit, you purchase
$65 of clay on credit from Clay Biz.
May 2nd You pay the $125 of office supplies owed to
Office Max by issuing check #107.
May 5th - Blue Sky company pays only $40 of the $65 of
pottery cups. Blue Sky notifies you that the company is
going bankrupt and will not pay the remaining balance.
May 9th You withdraw $250 as an owner withdrawl.
May 12th Company sells $150 of pottery cups and is paid
in cash immediately.
May 19th Company issues check #108 in the amount of
$65 to Clay Biz for the purchase of clay on credit in April.
May 22nd Company issues check #109 in the amount of
$125 to Union Bank for payment on its long-term loan.
Assemble Income and Expense statements
Assemble separate income and expense statements for both
April and May.
What is a Balance Sheet
Balance sheet is a point in time which displays the value of
the assets, liabilities, and equity of the company.
A balance sheet consists of what are called permanent
accounts while income and expense accounts are
considered Temporary accounts.
Assets = Liabilities + Equity
A balance sheet displays hard numbers, e.g. goodwill or
perceived value of the company is not included in your
balance sheet.
The net earnings or losses are folded into the equity section
so that is why the income and expense accounts.
Setting up a Balance Sheet
You will be setting up a balance sheet and carrying forward
the net earnings from March to April to May.
Balance Sheet as of February 28th, 2005
Cash $175
A/R 0
Tools and equipment $1500
Accounts payable 0
Long-term loan payable 500
Owners Equity $1175
Using these balances, well set up the balance sheet as of

March 31st and you will continue on for April and May.

Basic Bookkeeping

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Basic Bookkeeping

What is your level of expertise?

Running out of the checkbook

Most businesses start with cash accounting. You record

Under accrual accounting, you measure the income or

Companies that have inventory are supposed to use accrual

Bookkeeping is double entry. Enter a journal entry on the

Assets = liabilities + equity formula

Examples of debiting and crediting an account

Accounts examples such as cash, accounts payable,

Assets include both current and long term assets

Liabilities include both short-term and long-term.

Equity accounts represent what the owners have put into

Arrow Manufacturing paid their telephone expense of $95.

Write these names on the separate journals

Write DR in Column 1 and CR in Column 2 for each

Total up the debits and credits for each of the journals.

Both of these journals are on the right side of the equation

Using these balances, well set up the balance sheet as of

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