PowerPoint® Slides to accompany Basic Bookkeeping, Seventh Edition Prepared by JD Chazan CPA, CA National Taiwan University 3-1 Copyright © 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

Chapter 3: The Ledger 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 Copyright © 2015 by Nelson Education Ltd.3-4

Chapter 3: The Ledger Below is the ledger account for a customer, Devon Lauryl Company. All ledger accounts look basically the same. Copyright © 2015 by Nelson Education Ltd.3-5

Chapter 3: The Ledger 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. Copyright © 2015 by Nelson Education Ltd.3-6

Chapter 3: The Ledger...and each ledger account has a column for: Date Memo (sometimes called Explanation) Folio (the page number of the journal the entry came from)‏ Copyright © 2015 by Nelson Education Ltd.3-7

Chapter 3: The Ledger...as well as columns for: Debit entries Credit entries Balance (the ongoing value of the account) Copyright © 2015 by Nelson Education Ltd.3-8

Chapter 3: The Ledger Other columns not mentioned previously will be discussed at another time. These include: Discount Date Dr/Cr Copyright © 2015 by Nelson Education Ltd.3-9

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 100–199 Liabilities 200–299 Owner’s Equity 300–399 Revenues 400–499 Expenses 500–599 Copyright © 2015 by Nelson Education Ltd.3-10

Chapter 3: Chart of Accounts On this chart, asset accounts are assigned a number between 100 and 199 Liability accounts are assigned numbers between 200 and 299, etc. Assets 100–199 Liabilities 200–299 Owner’s Equity 300–399 Revenues 400–499 Expenses 500–599 Copyright © 2015 by Nelson Education Ltd.3-11

Chapter 3: Chart of Accounts The range of numbers assigned to a category will depend on the needs of the business. Copyright © 2015 by Nelson Education Ltd.3-12

Chapter 3: Chart of Accounts Northern Ltd uses 4-digit account numbers Eastern Repairs uses only 2-digit account numbers Copyright © 2015 by Nelson Education Ltd.3-13

Chapter 3: Chart of Accounts Here is an example of a very basic chart of accounts: Assets: Cash 101 Furniture 110 Equipment 120 Liabilities: Accounts Payable 201 Owner's Equity: Capital 301 Revenues: Sales 401 Expenses: Rent Expense 511 Salary Expense 515 Copyright © 2015 by Nelson Education Ltd.3-14

Chapter 3: Chart of Accounts At Western Co., what account number might be assigned to the Office Furniture account? Office Furniture is an asset, so it would be within Copyright © 2015 by Nelson Education Ltd.3-15

Chapter 3: Chart of Accounts At Northern Ltd., what account number might be assigned to the Capital account? Capital is an equity account, so it would be within Copyright © 2015 by Nelson Education Ltd.3-16

Chapter 3: Posting Posting is the process of transferring information from the journal to the ledger accounts. Copyright © 2015 by Nelson Education Ltd.3-17

Chapter 3: Posting General Journal entries should be posted in the order they appear on the journal page Copyright © 2015 by Nelson Education Ltd.3-18

Chapter 3: Posting Copyright © 2015 by Nelson Education Ltd

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 Copyright © 2015 by Nelson Education Ltd.3-20

Chapter 3: Posting Copyright © 2015 by Nelson Education Ltd.3-21

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 Copyright © 2015 by Nelson Education Ltd.3-22

Chapter 3: Posting Copyright © 2015 by Nelson Education Ltd.3-23

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 Copyright © 2015 by Nelson Education Ltd.3-24

Chapter 3: Posting Copyright © 2015 by Nelson Education Ltd.3-25 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 Copyright © 2015 by Nelson Education Ltd.3-26

Chapter 3: Posting Copyright © 2015 by Nelson Education Ltd.3-27

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 Copyright © 2015 by Nelson Education Ltd.3-28

Chapter 3: Posting Copyright © 2015 by Nelson Education Ltd.3-29

Chapter 3: Posting Step 6: Mark the status of the account balance as debit (Dr) or credit (Cr). Copyright © 2015 by Nelson Education Ltd.3-30

Chapter 3: Posting Copyright © 2015 by Nelson Education Ltd.3-31

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 Copyright © 2015 by Nelson Education Ltd.3-32

Chapter 3: Posting Copyright © 2015 by Nelson Education Ltd.3-33

Chapter 3: Posting Step 8: Repeat the process for each entry in the journal. Copyright © 2015 by Nelson Education Ltd.3-34

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 Copyright © 2015 by Nelson Education Ltd.3-35

Chapter 3: Trial Balance A Trial Balance has a 3-line heading The heading identifies who, what and when Copyright © 2015 by Nelson Education Ltd.3-36

Chapter 3: Trial Balance Accounts are listed in order by account number Copyright © 2015 by Nelson Education Ltd.3-37

Chapter 3: Trial Balance The balance of each ledger account is entered in the Debit column or the Credit column Copyright © 2015 by Nelson Education Ltd.3-38

Chapter 3: Trial Balance The totals must be equal Debits = Credits Copyright © 2015 by Nelson Education Ltd.3-39

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 Copyright © 2015 by Nelson Education Ltd.3-40

Chapter 3: Finding Errors in a Trial Balance (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 Copyright © 2015 by Nelson Education Ltd.3-41

Chapter 3: Finding Errors in a Trial Balance 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 Copyright © 2015 by Nelson Education Ltd.3-42

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 Copyright © 2015 by Nelson Education Ltd.3-43

Chapter 3: Finding Errors Step 2: Compare the amounts on the trial balance with those in the ledger accounts The error could be an amount copied incorrectly Copyright © 2015 by Nelson Education Ltd.3-44

Chapter 3: Finding Errors 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 Copyright © 2015 by Nelson Education Ltd.3-45

Chapter 3: Finding Errors 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 Copyright © 2015 by Nelson Education Ltd.3-46

Chapter 3: Finding Errors 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 $ This kind of error is very common Take extra care when entering and copying amounts Copyright © 2015 by Nelson Education Ltd.3-47

Chapter 3: Finding Errors Step 6: Double-check the calculation of the balance in each ledger account. Copyright © 2015 by Nelson Education Ltd.3-48

Chapter 3: Finding Errors 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 Copyright © 2015 by Nelson Education Ltd.3-49

End of Chapter Copyright © 2015 by Nelson Education Ltd. Chapter 3: The Ledger