Basic Accounting for Juan DelaCruz

The balance sheet is a summary of balances right? Before you can make a summary, you need the details. Now in accounting you need transactions. EACH transaction must be recorded in your books. This is important because nowadays Bureau of Internal Revenue (BIR) is focusing on professional services which typically are created through sole proprietorships. It was even said that teachers are paying taxes more than professional services.

Let’s say you want to open a sari-sari store in front of your house. You have Php 50,000 in savings. You withdraw your 50,000 savings to establish a sari-sari store. Your accounting entry is:

Date	Account Title	Debit	Credit
25-Sep-13	Cash	50,000
25-Sep-13	Owner's Equity		50,000
	To record capital infusion from owner

After withdrawing your 50,000 savings, you went to the hardware to buy hollow blocks, cement, lumber, nails, galvanized iron and steels. Total cost is 15,000. You hired a carpenter and mason to do the works. Their wages total is 5,000 upon completion of the sari-sari store.Accounting entry for this is:

Date	Account Title	Debit	Credit
29-Sep-13	Store Building	20,000
29-Sep-13	Cash		20,000
	To record capital construction of store building

Upon completion of the store building, you went to the grocery store nearby and bought canned goods, chips, shampoos, toothpaste, soaps, matches, and a lot of basic stuff your neighborhood needs. These products cost you 20,000.

Date	Account Title	Debit	Credit
30-Sep-13	Inventory	20,000
30-Sep-13	Cash		20,000
	To record products bought from Pedro’s grocery

Suppose that for the month of October, you were able to sell 5,000 worth of products in cash. Your policy is “Credit is good, but we need cash”.

Date	Account Title	Debit	Credit
31-Oct-13	Cash	5,000
31-Oct-13	Sales		5,000
	To record sales for the month of October 2013

The cost of the products you sold in October is 4,500. Another entry is required.

Date	Account Title	Debit	Credit
31-Oct-13	Cost of Goods Sold	5,000
31-Oct-13	Inventory		5,000
	To record cost of sales for the month of October 2013

The store building was estimated to last for 10 years.  Your first month has gone by and you need to record a depreciation expense. Your depreciation computation is:

Cost                                                     Php 20,000

Estimated Life                                     10 years (120 months)

Depreciation/month (20,000÷120)   Php 166.67 (rounded off to 167)

Date	Account Title	Debit	Credit
31-Oct-13	Depreciation Expense	167
31-Oct-13	Accumulated Depreciation		167
	To record depreciation expense for the month of October 2013

Now that you have recorded the entries until October 31, 2013, it’s time to summarize your entries by using a T- account. T-account is an account structure that resembles letter T. Each account transactions will be recorded under the T account.

See below. 

Once all transactions are recorded in the T account, you can summarize the Accounts using the trial balance. As of October 31, 2013, the summary of your T account balances are:

JUAN DELA CRUZ SARI- SARI STORE

TRIAL BALANCE

AS OF OCTOBER 31, 2013

(In Philippine Peso)

Account Titles                                          Debit                   Credit

Cash                                                           15,000

Inventory                                                     15,500                

Store Building                                             20,000    

Accumulated Depreciation                                                         167

Owner’s Equity                                                                       50,000

Sales                                                                                         5,000

Cost of Goods Sold                                      4,500

Depreciation Expense                                     167

Total                                                           55,167                 55,167

If you noticed, the debit and credit balances are ALWAYS equal. That will always be true. The debit and credit will always be equal. From this trial balance, you can generate the major Financial Reports which includes the Balance Sheet and Income Statement.

Tip: The abbreviation of Debit is Dr. while Credit is Cr. So that you won’t forget their abbreviation, here is the Doctor’s (Dr) Comfort Room (Cr) J.