Ppt ch 03

Chapter 3

The Ledger

Prepared by

Brooke C. W. Barker

Copyright © 2010 by Nelson Education Limited

Chapter 3: The Ledger

Chapter Objectives

After completing this chapter, you will be able to:

assign account numbers according to a chart of accounts post transactions from the General Journal to the General

Ledger accounts prepare a trial balance of the General Ledger


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What is the General Ledger?

The General Ledger is a book or file that holds all the individual ledger accounts in one place.

What is a ledger account?

A ledger account shows the increases and decreases (the debit and credit entries) of each asset, liability, owner’s equity, revenue, and expense account.


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Why have a journal and a ledger?Journal Record business

transactions on a daily basis

Activity for one account, for example, cash is scattered

Hard to say at end of month how much cash is left in account

Ledger Holds all the individual

ledger accounts in one place

Easy to see increases and decreases in each account

Can tell how many sales per month, how much cash left easily


Below is the ledger account for a customer, Devon Lauryl Company. All ledger accounts look basically the same.


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Each ledger account has: A name An account number

The chart of accounts will be discussed later.

A sheet number This is the page number of the account. Page 1, 2, 3, etc.


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...and each ledger account has a column for: Date Memo (sometimes called Explanation) Folio (the page number of the journal the entry came

from)


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...as well as columns for: Debit entries Credit entries Balance (the ongoing value of the account)


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Other columns not mentioned previously will be discussed at another time. These include:

Discount Date Dr/Cr


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Chapter 3: Chart of Accounts

A chart of accounts is a list of account categories and the account numbers assigned to them.

For example:

Assets 100–199

Liabilities 200–299

Owner’s Equity 300–399

Revenues 400–499

Expenses 500–599


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On this chart, asset accounts are assigned a number between 100 and 199.

Liability accounts are assigned numbers between 200 and 299, etc.

Assets 100–199

Liabilities 200–299

Owner’s Equity 300–399

Revenues 400–499

Expenses 500–599


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The range of numbers assigned to a category will depend on the needs of the business. Numbers are CHEAP, use more digits to allow flexibility


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Here's an example of a very basic chart of accounts:Assets:

Cash 1010

Furniture 1100

Equipment 1200

Liabilities:

Accounts Payable 2010

Owner's Equity:

Capital 3010

Revenues:

Sales 4010

Expenses:

Rent Expense 5110

Ad Expense 5150


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Pg 40 – Exercise 1

Pg 40 – Exercise 1 answers

1xx Cash (or Bank)

1xx Accounts Receivable

1xx Drafting Supplies Prepaid

1xx Insurance Prepaid

1xx Service Equipment

1xx Office Furniture & Equipment

1xx Land

1xx Building

Pg 40 – Exercise 1 Answers

2xx Accounts Payable

2xx Sales Tax Payable

2xx Bank Loan Payable

2xx Mortgage Payable

Pg 40 – Exercise 1 Answers 3xxx

Capital A. Fraser


4xx Sales

4xx Interest Revenue

4xx Rental Revenue


5xx Purchases

5xx Advertising Expense

5xx Delivery Expense

5xx Donations

5xx Interest Expense

5xx Rent Expense

5xx Salaries Expense

5xx Telephone Expense

Chapter 3: Posting

Posting is the process of transferring information from the journal to the ledger accounts.


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Chapter 3: Posting

General Journal entries should be posted in the order they appear on the journal page.


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Chapter 3: PostingCopyright © 2010 by Nelson Education Limited

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Chapter 3: Posting

There are 8 basic steps in the posting process:

Step 1: Locate the ledger account for the first entry to be posted.


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Chapter 3: Posting

Step 2: Enter the date of the transaction in the Date column of the ledger account.

Use the same date as the entry in the journal.

The month and year are usually recorded only for

the first entry in each account, or when starting a new ledger page, or when starting a new month or year.


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Chapter 3: Posting

Step 3: Enter a suitable explanation of the transaction in the Memo column.

This might include an invoice number, a cheque number, or a special notation.

Some transactions do not require explanations.


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investment

Chapter 3: Posting

Step 4: Enter the debit amount in the Debit column.

Write the amount clearly.No dollar signs, commas, or decimal points.Use '00' or '--' for no cents.


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Chapter 3: Posting

Step 5: Calculate the balance of the account and enter it in the Balance column.

The balance is the running value of the account.


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Chapter 3: Posting

Step 6: Mark the status of the account balance as debit (Dr) or credit (Cr).

To simplify this, we simply mark all Asset and Expense accounts DR in our template, and all Liability, Equity and Revenue accounts CR – as this is their normal balance.


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Chapter 3: Posting Copyright © 2010 by Nelson Education Limited

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Chapter 3: Posting

Step 7: Enter the folios in the journal and the ledger account.

The folio in the journal shows the ledger account number to which the entry was posted.

The folio in the ledger account shows the journal page number that the entry came from.


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Chapter 3: Posting

Step 8: Repeat the process for each entry in the journal.


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Pg 44 Practice Exercise 2 Enter information into the General Journal Post the journal entries to the Ledger accounts as explained.

P 44 - Exercise 2 – Chart of Accounts 101 Bank 102 Office Furniture and Equipment 110 A/R Michael Bensen 201 Kran’s Computer Co. 301 Capital, Henri Bruin 401 Commission Revenue 501 Rent Expense 503 Office Supplies Expense 505 Telephone Expense

General Journal – PG 44


General Journal– PG 44


General Ledger – Pg 44





Chapter 3: Trial Balance

A Trial Balance is a list of all the accounts in the ledger and their balances.

It proves that the ledger is in balance.

It proves that Debits = Credits.


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A Trial Balance has a 3-line heading.

The heading identifies who, what and when.


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Accounts are listed in order by account number.


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The balance of each ledger account is entered in the Debit column or the Credit column.


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The totals must be equal.

Debits = Credits


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P 44 – EX 2 – Create a Trial Balance

P 44 Trial Balance

Chapter 3: Finding Errors in a Trial Balance

If the Trial Balance does not balance, it might be because of one or more of the following:

A debit amount was entered into the credit column in a ledger account, or vice versa.

An error was made in calculating one or more account balances.

Amounts were copied incorrectly from a ledger account to the trial balance or from the journal to a ledger account.


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Chapter 3: Finding Errors in a Trial Balance

There are some errors that a Trial Balance will not reveal:

Posting to the wrong ledger account.Leaving out an entire transaction during posting.Compensating errors (an error on the debit side that

offsets an error of equal value on the credit side).


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Chapter 3: Finding Errors

Here are 7 steps for locating almost any error you could encounter in your books:

1. Double-check the addition of the Trial Balance.

The error could be just an adding mistake.


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2. Compare the amounts on the trial balance with those in the ledger accounts.

The error could be an amount copied incorrectly.


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3. Calculate the difference between the debit and credit totals on the Trial Balance to see how much you are out of balance.

Perhaps an account balance was forgotten or

a journal entry was missed during posting.


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4. Using the difference calculated in step 3, divide it by 2 and look for that amount.

An amount on the wrong side creates an imbalance

of double the amount.

So, if the difference between the totals is $70, divide by 2 to get a value of $35. Look for a possible incorrect balance or journal entry of $35.


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5. Divide the difference by 9. If the difference is divisible by 9, the error is usually a transposition of figures, such as $96 entered as $69, or $57.20 entered as $52.70.

This kind of error is very common. Take extra care when entering and copying amounts.


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6. Double-check the calculation of the balance in each ledger account.


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7. Thoroughly check every posting from the journal to the ledger accounts to ensure that each one has been posted accurately.

Unfortunately, if you have not found the error by this point,

it is necessary to double-check everything.


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P 49 - Exercise 6 Please hand in corrected trial balance at the end of class. Work in groups if you prefer


End of Chapter 3


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