powerpoint slides to accompany basic bookkeeping, seventh edition prepared by jd chazan cpa, ca...

PowerPoint® Slides to accompany

Basic Bookkeeping,Seventh Edition

Prepared by

JD Chazan CPA, CANational Taiwan University

3-1Copyright © 2015 by Nelson Education Ltd.

3-2

Chapter 3

The Ledger

Copyright © 2015 by Nelson Education Ltd.

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

Copyright © 2015 by Nelson Education Ltd. 3-3


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



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



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.



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

from)



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



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

• Discount Date• Dr/Cr


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 100–199Liabilities 200–299Owner’s Equity 300–399Revenues 400–499Expenses 500–599



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

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

Assets 100–199Liabilities 200–299Owner’s Equity 300–399Revenues 400–499Expenses 500–599



The range of numbers assigned to a category will depend on the needs of the business.



• Northern Ltd uses 4-digit account numbers• Eastern Repairs uses only 2-digit account numbers



Here is an example of a very basic chart of accounts:

Assets:Cash 101Furniture 110Equipment 120

Liabilities:Accounts Payable 201

Owner's Equity:Capital 301

Revenues:Sales 401

Expenses:Rent Expense 511Salary Expense 515



At Western Co., what account number might be assigned to the Office Furniture account?

•Office Furniture is an asset, so it would be within 100 - 299.



At Northern Ltd., what account number might be assigned to the Capital account?

•Capital is an equity account, so it would be within 3001 - 3999


Chapter 3: Posting

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


Chapter 3: Posting

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


Chapter 3: Posting


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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


Chapter 3: Posting


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


Chapter 3: Posting


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


Chapter 3: Posting


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


Chapter 3: Posting


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


Chapter 3: Posting


Chapter 3: Posting

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


Chapter 3: Posting


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


Chapter 3: Posting


Chapter 3: Posting

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


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



A Trial Balance has a 3-line heading

• The heading identifies who, what and when



• Accounts are listed in order by account number



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



• The totals must be equal

Debits = Credits


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

• A debit balance was listed in the credit column of the trial balance, or vice versa

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



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

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

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



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)• Recording a transaction twice


Chapter 3: Finding Errors

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

Step 1: Double-check the addition of the Trial Balance. • The error could be just an adding mistake



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

• The error could be an amount copied incorrectly



Step 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



Step 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



Step 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



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



Step 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


powerpoint slides to accompany basic bookkeeping, seventh edition prepared by jd chazan cpa, ca...

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