BAT4mBAT4mUnit 1: Chapter 1Unit 1: Chapter 1

September 11 2014Quiz on Friday September 12,

2014

The Simple LedgerThe Simple Ledger• An An ACCOUNTACCOUNT is a specially ruled is a specially ruled

pagepage designed designed to record the to record the changes changes in each individual itemin each individual item affecting the financial positionaffecting the financial position• Business transactions (we learned in Business transactions (we learned in

unit 1) are recorded in General Journal unit 1) are recorded in General Journal first and then the numbers will be first and then the numbers will be transferred to each account. transferred to each account.

• Usually there is one account for each Usually there is one account for each asset or each liability. asset or each liability.

Simple Ledger The T-accounts (or General Ledger pages) are kept in the order in which the items are found on the balance sheet.

At the front of the ledger there is a Chart of Accounts (like table of contents of a book) which lists all the account names and account numbers.

NOTE: Asset accounts usually start with a “1”; Liabilities accounts usually start with a “2” & Owner’s Equity accounts usually starts with a “3”

The Simple LedgerThe Simple Ledger• LEDGER LEDGER is a is a group of accounts group of accounts • Ledger is like a Ledger is like a bookbook or computer file or computer file• Ledger is a Ledger is a permanent summarypermanent summary of all of all

transactions. transactions. • A company's A company's financial statements are are

generated from generated from summary totalssummary totals in the in the ledgersledgers (Just as the ending balance of Equation Analysis Sheet was used to make Balance Sheet.)

The Simple LedgerThe Simple Ledger• A A book book that has a that has a separate pageseparate page for for

each account (item found on the B/S) each account (item found on the B/S) and has each transaction recorded in and has each transaction recorded in it is called a it is called a GENERAL LEDGERGENERAL LEDGER

• T-AccountT-Account: Simple type of account. : Simple type of account. This is used to help you understand This is used to help you understand accounting theory. accounting theory.

Account Name Account Name

LeftLeft RightRight

Four important features Four important features of all ledger accounts (or T accounts):of all ledger accounts (or T accounts):

1.1. Each individual balance sheet item (such Each individual balance sheet item (such as cash) is given its own page (space) as cash) is given its own page (space) with the name of the item at the top. with the name of the item at the top. These individual sheets are called These individual sheets are called accounts.accounts.

2.2. The dollar figure of each item is The dollar figure of each item is recorded in the account on the first linerecorded in the account on the first line

AssetsBeginning $Value

As we learned in chapter 1, every transaction must affect the accounting equation min twice!

Every account has two sides and they are referred to as the Left Side (Debit) and the Right side (Credit). The two sides allow the accountant to show an increase or a decrease in its amount.

T- AccountsLeft Side Right Side

(Debit) (Credit)

Dr. Cr.

Debit and Credit TheoryDebit and Credit Theory

http://www.youtube.com/watch?v=j71Kmxv7smk

High School - Accounting Rap

Debit Credit Accounting Rap Debit Credit Accounting Rap songsong

by Colin Doddby Colin Dodd

The Rule of Debit and The Rule of Debit and CreditCredit

• Increases are shown on the same side as normal beginning balance of the account appears in the equation

• Decreases are shown on the opposite side

• For example, for cash account, when the transaction increase the balance, the amount should be recorded in the left side (debit) of the T account.

The Rule of Debit and The Rule of Debit and CreditCredit

• Increases are shown on the same side as normal beginning balance of the account appears in the equation

• Decreases are shown on the opposite sideA = L + OE

AssetsAssets Liabilities Liabilities Owner’s EquityOwner’s Equity

Debit Debit DebitDebit DebitDebit

CreditCredit CreditCredit CreditCredit

The Rule of Debit and The Rule of Debit and CreditCredit

• Increases are shown on the same side as normal beginning balance of the account appears in the equation

• Decreases are shown on the opposite sideA = L + OE

ExpenseExpense RevenueRevenue

Debit Debit DebitDebit DebitDebit

CreditCredit CreditCredit CreditCredit

Every transaction in business is recorded both as a debit in one or more accounts and as a credit in one or more accounts.

Under this system, the total of the debit entries equals the total of the credit entries

Double Entry System Double Entry System of of AccountingAccounting

1. Source Document – Analyze each transaction for its effects on the accounts.

2. Enter the transaction information in a journal (book of original entry)

3. Transfer (post) the journal information to the correct accounts in the ledger (book of accounts)

Steps in the Recording ProcessSteps in the Recording Process

P82 E2-3, E2-5, E2-6P85 P2-2A, P2-3A (tomorrow’s HW)

Class work / HomeworkClass work / Homework