Introduction to Accounting Introduction to Accounting 120120

Chapter 4The Simple Ledger

The Simple LedgerThe Simple Ledger

•In this chapter, you will be learning the system used to maintain an up-to-date financial position. For this purpose, accountants developed the account and the ledger.

An AccountAn Account

•An account is a page specifically designed to record the changes in each individual item affecting the financial position. There is one account for each item.

The LedgerThe Ledger

•All the accounts together are called the ledger. A ledger is a group or file of accounts.

Types of Ledgers: Loose-Types of Ledgers: Loose-LeafLeaf

• Loose Leaf: In the pre-computer era, accounting personnel had to record each change by hand. The pages were actual pieces of paper and were normally housed in a large ledger book. These books, designed specifically for accounting, provide rulings for money items and other necessary notations.

Types of Ledgers: RolodexTypes of Ledgers: Rolodex

• Card Ledger: Another pre-computer ledger system was the card ledger. Account information was recorder on individual cards and housed on a device similar to a rolodex. Envision accounting records of a dental office with each customer having their own card displaying the date, the amount of each bill and the receipt of any payment.

Types of Ledgers: Computer Types of Ledgers: Computer LedgerLedger

• Computer Ledger: Today, most businesses use some type of computerized accounting software. These programs automatically adjust the account when a transaction is entered. Individual accounts can be viewed and printed at any time.

The General LedgerThe General Ledger

• View the following display. It is important to understand that each balance sheet account has its own "page" in the ledger, holding information specific to it.

The T-AccountThe T-Account

• Another learning device is the T-Account. Unlike the equation analysis sheet, which is only used by accounting learners, accountants frequently use the T-Account. It is not a formal way to present data, but it is useful to quickly decipher the effects of any transaction. Examine the T-Account layout:

The T-AccountThe T-Account

• The T-Account is in fact shaped like the letter T and divides information onto its two sides: the left and the right.

• As information is entered, the T-Account displays:– The account name – The opening or beginning balance – Individual entries – Possibly an ending or updated balance

• This unit will use the T-Account as the account "page." Each account will have its own T and the assembled T-Accounts will make up the general ledger.

Establishing the T-Account Establishing the T-Account LedgerLedger

• The first steps to establishing T-Accounts and developing a ledger is to record individual account names and opening balances. The account names and opening balances are obtained from a company's opening balance sheet.

• Examine the balance sheet for Atlantic Fleet, a rental company owned by Charles Stanson in Campbellton, New Brunswick. The preliminary (opening) balance sheet contains the assets acquired, the costs incurred and the owner's net worth when establishing the business. The company is about to open its door and begin operations. The data from this statement will be used to set up the accounts of the ledger in T-Account form.

The Opening BalanceThe Opening Balance

• The opening balance for an Asset account is recorded on the left side of the T-Account. The opening balance for a Liability account or an Owner's Equity account is recorded on the right side of the T-Account.

• Initially, it may be difficult to recall on which side of the T-Account the opening balance is recorded. An easy way to remember is to envision a balance sheet with a T-Account drawn on top.

• When the T-Account is drawn on top of the balance sheet:– The assets fall on the left side; thus, the opening balance falls

on the left side. – The liabilities and owner's equity fall on the right side; thus,

their opening balances fall on the right side.

  Features of the T-Account Features of the T-Account LedgerLedger

• Examine the T-Accounts ledger of Atlantic Fleet with their opening balances:

  Features of the T-Account Features of the T-Account LedgerLedger

• Note the following important features of the T-Account ledger:

• Each balance sheet item is given its own page (T-Account).

• The name of the account is centered at the top. • The opening dollar figures for assets are recorded on

the left side of the T-account. • The opening dollar figures for liabilities and capital

are recorded on the right side of the T-Account. • The sum of the left sides equals

the sum of the right sides. • Both the ledger and the balance

sheet display the financial position of the business. 

Check Your Knowledge: Check Your Knowledge: U4A1U4A1

• Head to the O:\ drive and open U4A1.doc and U4A1b.doc

• Complete these two worksheet assignments individually or in groups of 2.

• Once you have completed the assignments, print both of them, staple and hand them in (in tomorrow’s class)!

• We will have today and some of tomorrow’s class to complete them.