Transcript BAF3M Accounting

BAF3M Accounting
Chapter 4 – The Simple Ledger
4.1 Ledger Accounts
First off, some key distinctions:
 An “Account” is a page designed to
record the changes for an individual item
 A “Ledger” is a group or file of accounts
“Heath Ledger” is a late actor best known
for playing The Joker in The Dark Knight
4.1 Ledger Accounts
• There are many ways to create a ledger
• In “real world” would be computerized
• In “class” we will use paper to learn the
accounting theory
• Each item (account) on the B/S has its
own page in the ledger (p. 89)
• Use T-Accounts for this…
4.1 Ledger Accounts
• T – accounts
Called so because they look like a T
Account name
left
right
4.1 Ledger Accounts
• It’s key to understand what side of the
ledger the beginning balance is on
• ASSETS  LEFT
• LIABILITIES + OE  RIGHT
4.1 Ledger Accounts
• To Do
• 1) Copy the T account relationship on
page 90.
• Do Exercises 1, 2
• We’ll do 3 together
• Do Exercise 4
4.2 Debit and Credit Theory
• Debit (DR)  LEFT SIDE
• Credit (CR)  RIGHT SIDE
• Asset accounts have DEBIT values
• Liab & OE accounts have CREDIT values
4.2 Debit and Credit Theory
• Rules of Debit and Credit
– For each type of account, record increases on
its beginning value side and decrease on the
other side
– EX. ASSETS  increases – left -- debit
 decreases – right -- credit
4.2 Debit and Credit Theory
Types of
Accounts
Beginning
Value Side
Increases
Decreases
ASSET
accounts
LEFT
DEBIT
CREDIT
LIABILITY
&
OWNER’S
EQUITY
accounts
RIGHT
CREDIT
DEBIT
4.2 Debit and Credit Theory
• Memorize this:
ASSETS
+ DR CR
=
LIABILITIES + OWNER’S EQUITY
DR
+
CR
Follow along with scenario on pgs 94 - 100
+
DR CR
4.2 Debit and Credit Theory
• TO DO:
– 4.2 Questions #1 – 6, 9 – 11; pg 102
– 4.2 Exercises 1 – 4 Pg 102-4
4.3 Account Balances and
Terminology
• Calculating the Balance of an account
– 2 steps
• Step 1: Add the two sides separately (your totals
are called ‘pin totals’ or ‘pencil footings’)
• Step 2: Subtract the smaller total from the larger
total, write the result beneath the larger number
and circle it
• See Example Figure 4.6 p. 94
4.3 Account Balances and
Terminology
•
•
•
•
Interpreting the Balance of an Account
Exceptional Account Balances
The Bank Account
Buying & Selling on Credit
– Read each section (p.94) and make your own
notes
4.4 Trial Balance
WHY DO WE DO A TRIAL
BALANCE?
• Periodically it is necessary to check the
accuracy of the ledger (your T-accounts)
• To do this we use a form called a TRIAL
BALANCE
4.4 Trial Balance
WHAT IS A TRIAL BALANCE?
• TRIAL BALANCE - is simply the listing of
the account balances in a ledger
– it is used to see if the dollar value of the
accounts with debit balances is equal to the
dollar value of the accounts with credit
balances
4.4 Trial Balance
KEY TERMS
• IN BALANCE – if the debits equal the
credits
• OUT OF BALANCE – if the debits don’t
equal the credits
STEPS TO CREATE A TRIAL
BALANCE
1) Include the heading (who, what, when)
2) List all the accounts and their balances.
3) Place the debit balances in a debit
column and the credit balances in a
credit column.
4) Add up the 2 columns.
5) See if the 2 column totals are the same.
Trial Balance Example
Metropolitan Movers
Trial Balance
17-Sep-08
Cash
$
8
Account Receivable - B. Cava
2 8
Account Receivable - K. Lincoln
1 4
Equipment
13 4
Trucks
42 5
Account Payable - Central Supply
Loan Payable - Mecury Finance
Capital - J. Hofner
7
0
0
5
0
5
0
0
0
0
$1 7 5 0 25 1 7 0 34 1 0 5 -
$61 0 2 5 - $61 0 2 5 -
4.4 Trial Balance
If the 2 columns balance does that
mean I did it right?
NO
Sometimes the errors made were incorrect entries that
just happened to be balanced .. This takes some skill
to detect and solve