Embed Size (px)
Citation preview
1
Chapter 4: The Simple Ledger
account a record that documents each change to items in the accounting equation. There is one account for each asset, each liability, and each type of equity.
ledger a group or file of accounts
4.1: Ledger Accounts Pages 88 92
2
Taccounts a simplified form of an account used as a teaching tool only to help understand accounting theory.
Note the balance sheet and the related Taccounts on page 89.
Important Features of Ledger Accounts• Each individual balance sheet item is given its own Taccount.
• The dollar figure for each item is recorded on the first line. This is the beginning value for the account.
• The correct side for the beginning value is the side on which it is found in the fundamental accounting equation.
3
Debit (Dr) the word associated with the left side of an account.
Credit (Cr) the word associated with the right side of an account.
4.2 Debit and Credit Theory Pages 92 105
Debit and Credit Rules: Increases are recorded on the balance side.
Decreases are recorded on the side opposite the balance side.
Account Type Beg. Value Side Increase Decrease
Asset
Liability
Owner's Equity
4
Applying Rules of Debit and Credit
﴾A﴿ ﴾B﴿ ﴾C﴿ ﴾D﴿ ﴾E﴿
Account
Names
Assets, Liabilities,
or Owner’s Equity
Increase ﴾+﴿
or Decrease ﴾–﴿
Debit or
CreditAmount
5
Accounting Entry the changes in the accounts caused by one business transaction, expressed in terms of debit and credit.
Doubleentry system of accounting a system of accounting which records transactions in two steps with the debits recorded first followed by the credits so that the total of the debit entries equals the total of the credit entries.
6
Items to keep in mind for each accounting entry: Total debits = Total Credits A balanced entry is not necessarily a correct entry.
account balance the figure which gives the dollar value of an account and shows whether it is a debit or credit value.
4.3 Account Balances and Terminology Pages 105 111
7
Calculating the Balance of an Account
Step 1 Write down the subtotal of each side beneath the last item of each side using tiny pencil figures called pin totals or pencil footings.
Step 2 Subtract smaller total from larger total and place result beneath larger of two pin totals and circle this amount.
Calculating Account Balances for Pacific Trucking
8
Exceptional Account Balances a balance found on a side opposite to where it would normally be found.
Example: Cash has a credit balance instead of a debit balance.
Should not last long. May be the result of:• overpayment by a customer• overdraft in the bank• overpayment of an account payable• customer/business, who owes nothing, returns merchandise
The account balance should easily indicate: A debit or credit balance.
The value of the account balance.
Usually indicate the type of account.
9
The Bank Account Since it is more convenient for businesses to keep money in a bank account, an account called Bank will be used instead of Cash.
Buying and Selling on Credit
purchase on account purchasing an item and paying for it at a later date. Increases an account payable, a liability.
sale on account selling an item and receiving payment at a later date. Increases an accounts receivable, an asset.
10
payment on account paying for an item that was previously bought on account. Money paid to a creditor reducing an accounts payable, a liability.
receipt on account receiving money for an item that was previously sold on account. Money received from a debtor reducing an accounts receivable, an asset.
Trial Balance a listing of the accounts and their balances in a ledger. The columns are totaled to see if the DR total = CR total
in balance DR total = CR total
out of balance DR total = CR total
4.4 Trial Balance Pages 111 117
Note steps for taking off a trial balance on page 102.
11
Page 112
Taking Off A Trial BalancePage 113
12
A ledger that does not balance indicates that at least one error has been made. This/these error(s) must be corrected before doing any other accounting activity. Standard practice to take off a trial balance at least once a month and kept on file for at least a year. Even if the trial balance totals equal, there still may be mistakes.
Importance of a Trial Balance
13
Procedure to Follow if Trial Balance Does Not Balance
