Study Set Content:
Business transactions always affect two
accounts. Each entry has an effect—whether an
increase, decrease, or no effect at all—on assets,
liabilities plus owner’s equity.
Basic Accounting Equation:
Assets (A) = Liabilities (L) + Owner’s Equity (OE)
Every company’s asset comes from the
investments made by the owner
Owner's Equity
debts from the creditor
Liabilities
An accounting device for grouping,
summarizing, or classifying changes caused
by transactions.
Account
The record of transactions documenting the
increases, decreases, and balances of
assets, liabilities, capital, revenues, and
expenses.
Account
3 Parts of Account
1. The name of the account and account
number
2. The debit side (left side)
3. The credit side (right side)
Commonly used prior to the formal entry of
transactions in the basic books of
accounting.
T-Account
➢ Increase in assets and expenses
➢ Decrease in liabilities
Debit
➢ Increase in liabilities and income
➢ Decrease in assets
➢ Increase in owner’s equity
Credit
when the
total amount of debits exceeds the total amount of
credits.
Debit Balance
when the
sum of the credits is greater.
Credit Balance
equal debit and credit entries
for every transaction.
Double-entry accounting
When only two accounts are
affected, the amounts of debits and credits remain
equal
If there are more than two accounts that are
affected, then the total entries for debit must be
equal to the total entries for credit.
Importance of Record-keeping
1. It provides clear and detailed accounts
regarding the financial activities of the
pharmacy.
2. It shows the pharmacy’s profitability.
3. It provides visual and permanent basis for
observing the operation of the pharmacy.
4. Good records are needed for both internal
and external purposes.
Agencies interested in the
financial records of the pharmacy
1. Government - Bureau of Internal Revenue
2. Investors, Stockholders, Suppliers
3. Employees
4. Customers, Clients
Government -
Bureau of Internal Revenue
➢ This book may be called the diary of the
business since it records all the transactions
happening in its life in the order of their
occurrence.
Journal
The journal, or daybook, is the original entry
for the accounting data and is therefore
called the
“book of original entry”
