Post on 02-Jan-2016
transcript
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WHAT WE DISCUSSED IN LAST CLASS?
Bookkeeping process Source documents/vouchers => Journal => Posting
=> Trial Balance => Financial Reports(BS, IS, CFS) Debit/Credit
AID Debit = Credit (Rational Balance Sheet Equation)
Journalizing Process Data from source documents/vouchers to Journals.
Chart of Accounts Coded (numbered) list of all account titles Varies across firms depending on sectors and
complexity and size of organization.
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TERMS WE LEARNT IN LAST CLASS
Transaction documents Vouchers Journal / Book of original entry Day book General Journal Specialized Journal Debit Credit Journalizing Chart of Accounts
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OBJECTIVES
Posting process Subsidiary Ledgers Bookkeeping process in computerized system Trial Balance Closing the books
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BOOKKEEPING PROCESS IN DOUBLE-ENTRY ACCOUNTING SYSTEM
Journal/Day Books
Ledger
Trial Balance
Financial Statements(One Set)
Transaction Documents
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STEP 3: POSTING INTO GENERAL LEDGER
What is general ledger? Traditionally, the general ledger was a bound or
loose-leaf book of ledger accounts. The general ledger is a collection of all ledger
accounts that support the organization’s financial statements.
What is a ledger account? A ledger account is a listing of all the increases
and decreases in a particular account.
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LEDGER ACCOUNTS
Ledger accounts are also called T-accounts because they take the form of the capital letter T.
The vertical line in the T divides the account into left and right sides for recording increasing and decreases in the account. (Not necessarily in that order)
The account title is on the horizontal line of the T.
Left Side Right Side
Debit Credit
I ncreases in Cash Decreases in Cash
Cash
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LEDGER ACCOUNTS CONTINUED …
How do we place an entry on left(debit) or right(credit) side of the T accounts? Transferring entries into ledger T accounts from
general journal or special journals is a mechanical process.
Since every entry in the journal is already classified as either a debit or credit entry, the data is simply copied to T account.
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BALANCE OF A LEDGER ACCOUNT
A balance is the difference between the total left-side(debit) and right-side(credit) amounts in an account at any particular time.
Asset accounts have left-side(debit) balances.
Liability and owners’ equity accounts have right-side(credit) balances.
Concept Check: Expense accounts have ------------- balances.
(Hint: Think expense accounts as negative OE accounts.)
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POSTING PROCESS
The transferring of amounts from the general journal (daily listing) to the appropriate T-accounts in general ledger is called posting.
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POSTING PROCESS CONTINUED … Cross-referencing is the process of using
numbering, dating, and/or some other form of identification to relate each general ledger posting to the appropriate journal entry.
Note that a single transaction from the journal might be posted to several ledger accounts.
A popular format is shown below with an extra column containing running balance. General Ledger
Date Explanation J ournal Ref. Debit Credit Balance2-J an-13 Capital stock issued to Sandeep 1 400,000.00 400,000.00
2-J an-13 Borrowed at 10% int. 2 100,000.00 500,000.00
3-J an-13 Bought Store Equipment 3 15,000.00 485,000.00
CASH Account No. 100
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EXAMPLE: POSTING PROCESSGeneral Journal
Date Entry No. Accounts and ExplanationPosting
Reference Debit Credit
2-Jan-13 1 Cash 100 400,000
Paid-in-capital 300 400,000
Capital stock issued to Sandeep
2-Jan-13 2 Cash 100 100,000
Notes Payable 202 100,000
Borrowed at 10% interest on a one year
note
3-Jan-13 3 Store equipment 170 15,000
Cash 100 15,000
Bought store equipment for cash
General Ledger
CASH Account No. 100
Date ExplanationJournal Ref. Debit Date Explanation
Journal Ref. Credit
2-Jan-13 Capital stock issued to Sandeep
1400,000.0
0 3-Jan-13Bought Store Equipment 3 15,000.00
2-Jan-13Borrowed at 10%
int. 2100,000.0
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BOOKKEEPING PROCESS IN Computerized System 0
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Journal/Day Books
Trial Balance
Financial Statements(One Set)
Transaction Documents
LedgersTransaction
EntryScreens
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NEED FOR SPECIAL JOURNALS
For small business, one can enter entries into only one book that is general journal.
But as the business expands and the number of transactions becomes large, it may become cumbersome to enter all transactions into a single journal.
For quick, efficient and accurate recording of business transactions, Journal is sub-divided into special journals.
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SPECIAL JOURNALS
Basis for special Journals: Similar nature of transactions. Repetitiveness of a type of transaction.
For example, All cash transactions can be recorded in one book. All credit sales transactions in another book. Similarly, all credit purchases in yet another book.
These special journals are also called daybooks or subsidiary books.
Advantage of Special Journals: Division of labor Economical Ease of managerial reporting
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COMMON JOURNALS
Special Journal Purpose (Record Transactions related to )
Cash Book Cash receipts and cash payments
Purchases Book Credit purchases of goods
Purchases Return (Return Outwards) Book
Purchase return of goods
Sales Book Credit sales of merchandise
Sales Return (Return Inwards) Book
Return of goods by customer. Sales to these customer were on credit.
Journal Proper or Journal Residual or General Journal
Record all transactions that do not find place in special journals
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CENTRAL THEME OF SPECIAL JOURNALS
Since the nature of transaction in a special journal is known, either debit or credit side journalizing is done in the special journal. The other side of entry is implicit.
When data is posted from journal to the ledger, both debit and credit sides of transaction are posted.
Examples to illustrate it.
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SPECIAL JOURNAL: EXAMPLE
Books of Konia SupplierSales(Journal Book)
Date Invoice No.Name of the Customer(Account to be Debited) L.F Amount
6-Apr-10 178 Raman Traders 4,850.00
9-Apr-10 180 Nutan Enterprises 21,000.00
28-Apr-10 209 Raman Traders 85,000.00
30-Apr-10 110,850.00
Posting into Ledger Accounts
General Ledger
Date Explanation J ournal Ref. Debit Credit Balance6-Apr-10 Sales 178 4,850.00 4,850.00
28-Apr-10 Sales 209 85,000.00 89,850.00
Date Explanation J ournal Ref. Debit Credit Balance
9-Apr-10 Sales 180 21,000.00 21,000.00
Date Explanation J ournal Ref. Debit Credit Balance
30-Apr-10
Sundaries as per sales book 110,850.00 110,850.00
Sales Revenue Account No. XXX
Raman Traders Account No. XXX
Nutan Enterpriese Account No. XXX
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SUBSIDIARY LEDGERS
A subsidiary ledger is a group of similar accounts whose combined balances equal the balance in a specific general ledger account.
The general ledger account that summarizes a subsidiary ledger's account balances is called a control account or master account.
Example: an accounts receivable subsidiary ledger (customers' subsidiary ledger) includes a separate account for each customer who makes credit purchases.
The combined balance of every account in this subsidiary ledger equals the balance of accounts receivable in the general ledger.
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SUBSIDIARY LEDGER CONTINUED …. Posting a debit or credit to a subsidiary ledger
account and also to a general ledger control account does not violate the rule that total debit and credit entries must balance because subsidiary ledger accounts are not part of
the general ledger; they are supplemental accounts that provide the
detail to support the balance in a control account. Example: In our sales book example, we could
have a control account-Accounts Receivable account. On periodic basis, balance from all customer subsidiary accounts will be added and recorded into control account.
Note: Subsidiary ledger itself can contain control ledger account.