Week four
Week four Monday, 22 August 2016
1:22 PM
• What is a general ledger? General ledger- summary of each account • A general ledger contains all the assets, liabilities and equity accounts,
• • • •
Collection of all the individual accounts of an entity Organised in the order they appear in the balance sheet and income statement Each account has a specific identification number The ledger accumulates all the information about changes in specific account balances such as sales revenue, cash, and wages expense. • Can vary from simple two digit number to complex alphanumeric system Two formats to do ledger : Account Formats T-Accounts • Convenient way to show individual accounts • Illustrate effects of transactions on an account • Still used in practice for quick calculations Running Balance Accounts • Used in formal accounting systems • Standard presentation for computerised systems • Familiar to most - format used in Bank Statements ACCOUNT: Cash at Bank Date – 2016
Account No. 100 Explanation
Debit
October. 3 Chris, Capital
60 000
4 Vehicle
Balance 60 000
30 000
15 Income
•
Credit
6 000
30 000 36 000
16 Wages expense
5 000
31 000
20 Accounts Payable
2 000
29 000
21 Accounts Receivable 1 000 25 Chris, Drawings
30 000 1 400
28 600
General ledger T-Accounts Three points: 1. Title 2. Place for recording increases 3. Place for recording decreases Account Title Date
Explanation
Amount
Debit (Dr) side Credit (Cr) side Lectures Page 1
Date
Explanation
Amoun t
Credit (Cr) side Cash at Bank Date 2016
Explanation
Amount
Date 2016
Explanation
Amoun t
3/10
Chris, Capital
60 000
4/10
Vehicle
30 000
15/10
Income
6 000
16/10
5 000
21/10
Accounts receivable
1 000
20/10
Wages expense Accounts
25/10
67 000 Balance b/d
• 1. 2. 3.
4.
2 000
payable Balance (differenc c/d e)
Chris, Drawings
1 400 28 600 67 000
28 600
Trail balance Once recording is complete, a trial balance is prepared. the balance of each account in the general ledger must be calculated. It involves: For each account, add each side. Generally, the normal account balance side will be the side with the greater amount. Leaving a blank line, rule lines as illustrated in figure 2.33 and write in the greater amount calculated in step 1 on both the debit and credit sides of the account (between the ruled lines). The closing balance for the account can now be determined by subtracting the amounts listed on the lesser side from the total. The words ‘closing balance’ and the amount calculated in this step are recorded on the lesser side (generally the side opposite to the normal balance side). The date (the first day of the next month), the words ‘opening balance’ and the balance calculated in step 3 are written below the ruled-off lines on the greater account balance side (usually the normal balance side).
• Lists all ledger accounts and their balances- prep at end accounting period in order they appear • Debits in one column, credits in another • The totals of both columns must be equal • If this is the case, the ledger ‘balances’ • The main purpose of a trial balance is to prove the mathematical equality of debits and credits after posting. • In addition, a trial balance is useful in the preparation of financial statements,
These are the procedures for preparing a trial balance: 1. List the account numbers, names and their balances. 2. Total the debit and credit columns. 3. Verify the equality of the two columns. Limitations of the trial balance: • May balance but still contain errors • If it doesn’t balance there is definitely an error • but it doesn’t tell you what the error is
• Posting general journal transactions to general ledgers Posting from JOURNAL to LEDGER Lectures Page 2
Posting from JOURNAL to LEDGER • The procedure of transferring journal entries to ledger accounts is called posting. • General journal’s record each transaction (as discussed in Week 3) • General ledger records the effects of transactions on each individual account • Think of journal as an instruction – which accounts are changing, which direction and by how much? Then the ledger is the summary of each account. • Posting involves the following steps: 1. Using the account number in the posting reference column, locate in the ledger the account to be debited and enter the date the transaction occurred. 2. To the right of the date, enter the name of the ledger account to which the credit entry will be posted. This is called the cross-reference- provides additional info, indicate corresponding leder accounts 3. Enter the amount to be debited to the debit side of the ledger account. (If a running balance ledger account is used, enter the amount in the debit column of the ledger account and calculate the new balance in the balance column.) 4. In the general journal, place a tick beside the account number in the posting reference column. This signifies that the entry has now been posted to the ledger. 5. Repeat steps 1–4 for the credit side of the entry. • In a computerised system: • Posting is automated • Therefore, it is important that the initial entries are correct • Debits and credits automatically checked for equality • Completing the unadjusted trial balance 1. Unadjusted Trial Balance – Week 4 Is prepared before adjusting general journal entries are completed. This trial balance reflects all the activity recorded from day-to-day transactions and is used to analyse accounts when preparing adjusting entries. 2. Adjusted Trial Balance – Week 5 (DON’T WORRY FOR NOW!) Is completed after the adjusting entries are completed. This trial balance has the final balances in all the accounts and is used to prepare the financial statements. 3. Post-Closing Trial Balance – Week 6 (DON’T WORRY FOR NOW!) Shows the balances after the closing entries have been completed. This is your starting trial balance for the next year. As it is POST closing entries the Income and expense accounts have a zero balance (closed), and therefore, post-closing TB only includes Assets, Liability and Equity accounts.
• Introduction to the 10 column worksheet CHRIS PTY Works For LTD heet Account names
Trial balanc e Dr
the
month ended July 2016
Adjust ments Cr
Dr
Cr
Adjuste d Trial balanc e Dr Cr
Cash at bank AR Vehicle AP Income Lectures Page 3
Statem ent of profit or loss Dr Cr
Statem ent of financi al Dr
Cr
Income Wages Expense Capital Drawings Totals Profit or (Loss)
• Continuing with Gibbs Barber Shop Cash at Bank Jun 1 $10 000
$400 Jun 4 Jun 9 $260 $5 260 Jun 14 $160 June 16 June 17 $60 000 $13 200 June 17 Closing $51 240 Business Supplies
Jun 12 $700 Closing $700 Business Supplies Jun 12 $700 Closing $700 Grooming equipment Opening $0 Jun 12 $13 200
Closing $13 200 Telephone Payable Opening $0 Jun 5 $160 Jun 16 $160 Closing $0 Bank Loan Payable Opening $0
Jun 12 $60 000
•
Closing $60 000 Business Supplies Payable Opening $0 Jun 12 $700 Closing $700 Telephone Expense Jun 5 $160
Closing $160 Rent Expense Jun 4 $400 Closing $400
Lectures Page 4
Casual Wages Expense Jun 14 $860 Closing $860 Salary Expense Jun 14 $4 400 Closing $4 400 Capital Account Opening $0 Jun 1 $10 000 Closing $10 000 Income Opening $0 Jun 9 $260 Jun 12 $140 Closing $400
Account
Debit
Cash at Bank
51 240
Accounts Receivable
140
Business Supplies
700
Grooming Equipment
13 200
Credit
Telephone Payable
0
Business Supplies Payable
700
Bank Loan
60 000
Income
400
Capital
10 000
Telephone expense
160
Rent expense
400
Salary expense
4 400
Casual wages expense
860
Total
71 100
71 100
Lectures Page 5
1:22 PM
• What is a general ledger? General ledger- summary of each account • A general ledger contains all the assets, liabilities and equity accounts,
• • • •
Collection of all the individual accounts of an entity Organised in the order they appear in the balance sheet and income statement Each account has a specific identification number The ledger accumulates all the information about changes in specific account balances such as sales revenue, cash, and wages expense. • Can vary from simple two digit number to complex alphanumeric system Two formats to do ledger : Account Formats T-Accounts • Convenient way to show individual accounts • Illustrate effects of transactions on an account • Still used in practice for quick calculations Running Balance Accounts • Used in formal accounting systems • Standard presentation for computerised systems • Familiar to most - format used in Bank Statements ACCOUNT: Cash at Bank Date – 2016
Account No. 100 Explanation
Debit
October. 3 Chris, Capital
60 000
4 Vehicle
Balance 60 000
30 000
15 Income
•
Credit
6 000
30 000 36 000
16 Wages expense
5 000
31 000
20 Accounts Payable
2 000
29 000
21 Accounts Receivable 1 000 25 Chris, Drawings
30 000 1 400
28 600
General ledger T-Accounts Three points: 1. Title 2. Place for recording increases 3. Place for recording decreases Account Title Date
Explanation
Amount
Debit (Dr) side Credit (Cr) side Lectures Page 1
Date
Explanation
Amoun t
Credit (Cr) side Cash at Bank Date 2016
Explanation
Amount
Date 2016
Explanation
Amoun t
3/10
Chris, Capital
60 000
4/10
Vehicle
30 000
15/10
Income
6 000
16/10
5 000
21/10
Accounts receivable
1 000
20/10
Wages expense Accounts
25/10
67 000 Balance b/d
• 1. 2. 3.
4.
2 000
payable Balance (differenc c/d e)
Chris, Drawings
1 400 28 600 67 000
28 600
Trail balance Once recording is complete, a trial balance is prepared. the balance of each account in the general ledger must be calculated. It involves: For each account, add each side. Generally, the normal account balance side will be the side with the greater amount. Leaving a blank line, rule lines as illustrated in figure 2.33 and write in the greater amount calculated in step 1 on both the debit and credit sides of the account (between the ruled lines). The closing balance for the account can now be determined by subtracting the amounts listed on the lesser side from the total. The words ‘closing balance’ and the amount calculated in this step are recorded on the lesser side (generally the side opposite to the normal balance side). The date (the first day of the next month), the words ‘opening balance’ and the balance calculated in step 3 are written below the ruled-off lines on the greater account balance side (usually the normal balance side).
• Lists all ledger accounts and their balances- prep at end accounting period in order they appear • Debits in one column, credits in another • The totals of both columns must be equal • If this is the case, the ledger ‘balances’ • The main purpose of a trial balance is to prove the mathematical equality of debits and credits after posting. • In addition, a trial balance is useful in the preparation of financial statements,
These are the procedures for preparing a trial balance: 1. List the account numbers, names and their balances. 2. Total the debit and credit columns. 3. Verify the equality of the two columns. Limitations of the trial balance: • May balance but still contain errors • If it doesn’t balance there is definitely an error • but it doesn’t tell you what the error is
• Posting general journal transactions to general ledgers Posting from JOURNAL to LEDGER Lectures Page 2
Posting from JOURNAL to LEDGER • The procedure of transferring journal entries to ledger accounts is called posting. • General journal’s record each transaction (as discussed in Week 3) • General ledger records the effects of transactions on each individual account • Think of journal as an instruction – which accounts are changing, which direction and by how much? Then the ledger is the summary of each account. • Posting involves the following steps: 1. Using the account number in the posting reference column, locate in the ledger the account to be debited and enter the date the transaction occurred. 2. To the right of the date, enter the name of the ledger account to which the credit entry will be posted. This is called the cross-reference- provides additional info, indicate corresponding leder accounts 3. Enter the amount to be debited to the debit side of the ledger account. (If a running balance ledger account is used, enter the amount in the debit column of the ledger account and calculate the new balance in the balance column.) 4. In the general journal, place a tick beside the account number in the posting reference column. This signifies that the entry has now been posted to the ledger. 5. Repeat steps 1–4 for the credit side of the entry. • In a computerised system: • Posting is automated • Therefore, it is important that the initial entries are correct • Debits and credits automatically checked for equality • Completing the unadjusted trial balance 1. Unadjusted Trial Balance – Week 4 Is prepared before adjusting general journal entries are completed. This trial balance reflects all the activity recorded from day-to-day transactions and is used to analyse accounts when preparing adjusting entries. 2. Adjusted Trial Balance – Week 5 (DON’T WORRY FOR NOW!) Is completed after the adjusting entries are completed. This trial balance has the final balances in all the accounts and is used to prepare the financial statements. 3. Post-Closing Trial Balance – Week 6 (DON’T WORRY FOR NOW!) Shows the balances after the closing entries have been completed. This is your starting trial balance for the next year. As it is POST closing entries the Income and expense accounts have a zero balance (closed), and therefore, post-closing TB only includes Assets, Liability and Equity accounts.
• Introduction to the 10 column worksheet CHRIS PTY Works For LTD heet Account names
Trial balanc e Dr
the
month ended July 2016
Adjust ments Cr
Dr
Cr
Adjuste d Trial balanc e Dr Cr
Cash at bank AR Vehicle AP Income Lectures Page 3
Statem ent of profit or loss Dr Cr
Statem ent of financi al Dr
Cr
Income Wages Expense Capital Drawings Totals Profit or (Loss)
• Continuing with Gibbs Barber Shop Cash at Bank Jun 1 $10 000
$400 Jun 4 Jun 9 $260 $5 260 Jun 14 $160 June 16 June 17 $60 000 $13 200 June 17 Closing $51 240 Business Supplies
Jun 12 $700 Closing $700 Business Supplies Jun 12 $700 Closing $700 Grooming equipment Opening $0 Jun 12 $13 200
Closing $13 200 Telephone Payable Opening $0 Jun 5 $160 Jun 16 $160 Closing $0 Bank Loan Payable Opening $0
Jun 12 $60 000
•
Closing $60 000 Business Supplies Payable Opening $0 Jun 12 $700 Closing $700 Telephone Expense Jun 5 $160
Closing $160 Rent Expense Jun 4 $400 Closing $400
Lectures Page 4
Casual Wages Expense Jun 14 $860 Closing $860 Salary Expense Jun 14 $4 400 Closing $4 400 Capital Account Opening $0 Jun 1 $10 000 Closing $10 000 Income Opening $0 Jun 9 $260 Jun 12 $140 Closing $400
Account
Debit
Cash at Bank
51 240
Accounts Receivable
140
Business Supplies
700
Grooming Equipment
13 200
Credit
Telephone Payable
0
Business Supplies Payable
700
Bank Loan
60 000
Income
400
Capital
10 000
Telephone expense
160
Rent expense
400
Salary expense
4 400
Casual wages expense
860
Total
71 100
71 100
Lectures Page 5
