Performing Bookkeeping Tasks and Maintaining Accounting Records
The accounting cycle in practice
Bookkeeping is the disciplined capture of transactions into a double-entry system. Every transaction touches at least two accounts and the accounting equation (Assets = Liabilities + Equity) must stay balanced after each entry. Candidates must know the normal balance of each account class: assets and expenses are normally debits; liabilities, equity, and income are normally credits. Debits are recorded on the left, credits on the right - the words themselves carry no positive or negative meaning.
Source documents and the books of entry
Transactions are supported by source documents (sales invoices, official receipts, purchase invoices, delivery receipts, petty cash vouchers, bank statements). These feed the books of original entry: sales journal, purchases journal, cash receipts book, cash disbursements book, and general journal. Posting then transfers totals to the general ledger, and a trial balance checks arithmetic equality.
Traps to watch for
- Debit/credit confusion on expenses paid in cash: increase the expense (debit) and decrease cash (credit).
- Contra entries: a debit to one asset and credit to another (e.g., cash withdrawn for petty cash float) is not an expense.
- Trial balance fallacy: a balanced trial balance does not prove accuracy - offsetting errors, omitted entries, and postings to the wrong account of equal amount still balance.
- Capital vs. revenue expenditure: buying a delivery vehicle is an asset, not a vehicle expense.
Worked rule of thumb
Owner invests ₱50,000 cash: debit Cash ₱50,000, credit Owner's Capital ₱50,000. Then pays ₱8,000 rent: debit Rent Expense ₱8,000, credit Cash ₱8,000. Cash balance = ₱42,000; equity remains ₱50,000 less the ₱8,000 expense effect. Always ask: which accounts are affected, what class are they, and which side increases?