Bookkeeping is crucial for all businesses. Accounting services in the Philippines attest that you need to implement a system to track your cash flow, assess your profits and losses, and make good business decisions. Although it will take time, you need this to ensure your business stays profitable. There are many bookkeeping systems but one system you can utilize is the double-entry bookkeeping system– it records the financial transactions of your business in at least two accounts. Here’s a step-by-step mini guide to double-entry bookkeeping.
Step 1. Identify particulars
Start by identifying the transaction date, type, and the amount of money involved in the transaction. This step is crucial for accurate financial record-keeping and analysis.
Step 2. Debit or credit?
Identify whether the account is for debit or credit. If you are to record a purchase you acquired on account, you need to recall both the affected asset and liability accounts. Tax services in Manila emphasize that you must be meticulous to ensure accuracy.
|May xx, 2023||Purchases Accounts payable|
Step 3. Input the debit and credit amounts
In some cases, transactions may have more than one debit and credit amount so you need to make sure you input them in the appropriate accounts.
|May xx, 2023||Purchases Accounts payable||100.00|
If you purchased something worth P150.00 with a downpayment of P50.00 and the rest of the balance on account, it would involve one debit and two credits.
|May xx, 2023||Purchases Cash Accounts Payable||150.00|
This shows the elegance of bookkeeping as this transaction finds its place in the ledger. The value of the purchase is recorded in the “Purchases” account through a debit entry, capturing its essence. Meanwhile, the credits unfold, with the “Cash” account reflecting the downpayment and the “Accounts Payable” with the outstanding balance. Clearly, meticulousness must prevail in the graceful interplay of debits and credits for precision and harmony in your records.
Step 4. Record and post the transaction to the ledger
Posting your financial transactions to the ledger will help track your business’ financial progress. There are two types of ledgers:
- general ledger – records financial transactions that affect the whole company
- subsidiary ledger – records financial transactions that affect only a specific account and are used to determine customers and suppliers.
Step 5. Prepare a trial balance and check if total debits and credits are equal
The trial balance reports a list of the ledger accounts and their respective balances. There will be an error in your journal entries or ledger if the total debits and total credits are not equal. That’s why bookkeeping services in the Philippines emphasize being careful of the numbers you take note of to prevent mistakes.
Step 6. Make time to adjust the entries
You need to make this at the end of the accounting period. There are many types of adjusting entries–accruals, deferrals, prepayments, depreciation, and amortizations. To make one, you need the transaction date, the account name debited or credited, and the amount.
Step 7. Prepare worksheets and verify if the total debits and credits are equal after making an adjusting entry
Preparing worksheets is similar to a trial balance. The only difference is it includes the adjusting entries. Its purpose is to check if the total debits equal the total credits after making the adjusting entries. Ensure that both the total debits and credits are equal.
Step 8. Prepare the financial statements after errors are corrected
Once all the entries in your ledger have been double checked, you can go on to make accurate financial statements. The following are the three common financial statements:
- Income Statement – shows revenues and expenses and you usually prepare this monthly or annually.
- Balance Sheet – shows assets, liabilities, and equity. You prepare this at the end of your accounting period.
- Statement of Cash Flow – shows cash flows, inflows, and outflows. You can prepare this at any time but usually, you prepare it monthly or annually.
Financial statements are vital as they provide a comprehensive snapshot of your business’s financial performance. This helps you assess profitability, stability, and growth potential.
Step 9. Prepare your closing entries at the end of the accounting period
This needs to be done to close your temporary accounts which include your revenue, dividends, and expense account. Your balance will be zero after making your closing entries. This is to make sure the new accounting period begins with a clean slate.
Step 10. Post closing entries to the ledger
You need to post the closing entries you made to the ledger accounts. To do this, you need to debit the account being closed and credit the income or equity account appropriate to it. If you were closing your revenue account, you would debit revenue and credit income. For the dividends account, you would debit dividends and credit equity.
Step 11. Prepare the post-closing trial balance
This is a list of the ledger accounts after making your closing entries. Temporary accounts should no longer be present in this trial balance.
Step 12. Make reversing entries
This is optional. You make this at the start of your accounting period to reverse accruals. It will make your bookkeeping process easier and help save time.
If you need help, don’t hesitate to call our team. We offer accounting services in Pasig and beyond. Remember, your numbers serve as a crucial tool for demonstrating transparency to investors and making informed business decisions.