1. The Simple Ledger 4 1

2. Agenda Learning goals Vocabulary 4.1 ledger Accounts
4.2 Debits and Credits theory
Debits and Credits Song
4.3 Account Balances and Terminology
4.4 Trial Balance

3. Learning Goals What is account and what is a ledger
Be able to make accounts and ledger from a balance
Be able to record business transaction on an account (T-Account)
Be able to explain what is a credit and debit and what type of account are assets, liabilities, and owner’s equity

4. Vocabulary
Account Account Balance Credit Debit Double-entry system of accounting In balance Ledger Out of balance Payment on account Pencil footing Pin total Purchase on account Receipt on account Sale on account Trial balance

5. 4.1 Ledger Accounts
In this chapter we will learn how to keep up to-date-financial position. To do that we need account and ledger
Account: is a record that documents each change to items in the accounting equation. (one account for each asset, each liability and each owner’s equity)
Ledger: is a group or file of accounts

6. Figure 4.2: Pacific Trucking Balance Sheet
Figure 4– Chapter 4
Figure 4.2: Pacific Trucking Balance Sheet
HOW MANY ACCOUNTS DOES PACIFIC TRUCKING HAVE? 6

7. Figure 4.3: Pacific Trucking Ledger with Opening Balances
Figure 4– Chapter 4
Figure 4.3: Pacific Trucking Ledger with Opening Balances
These accounts are also called T-Accounts because each one looks like the letter T. 7

8. Important Features of a ledger Accounts
Each individual balance sheet item is given its own T-Account with the name of the item at the top
The dollar figure for each item is recorded in the account on the first line. Being the beginning value of each T-Account
The correct side for it’s beginning value is the side on which the item itself would appear in the accounting equation (A= L+OE)(Assets on the left and Liabilities and Owner’s Equity on the right)

10. Apply and practice
Review Questions 1-7 Exercises 1-4

11. 4.2 Debit and Credit Theory
So far you know that assets are a “left” side account and liabilities and owner’s equity are “right” side accounts
“left” = Debit (Dr)
“Right” = Credit (Cr)
Assets is a Debit account
Liabilities and owner’s equity are credit accounts

12. 4.2 Debit and Credit Theory
If an asset account increases, money is added to the debit side. If an asset account decreases, money is added to the credit side.
If owner’s equity or a liabilities account increases, money is added to the credit side. If owner’s equity or a liabilities account decreases, money is added to the debit side.

14. Double- Entry System of Accounting
Double-entry system of accounting dictates that at least TWO accounts need to be affected by a business transaction.
Also that when a credit is recorded there must be an offsetting debit recorded.
This is done to ensure that A = L + OE
Also that DEBITS = CREDITS

15. 4.2 Student handout
See if you understand and fill out the handout recording the debits and credits for Pacific Trucking Company from page 89. Ensure to record your transaction on the T-Accounts

16. Practice Questions
Review questions 1-12 and exercises 1-4

17. 4.3 Account Balance and Terminology
To calculate the balance of any of the accounts you need to:
Total each side of the T account. A line is drawn and the pin total is written below it for each side. Make sure that each side lines up.
Subtract the smaller total from the larger total. The difference is written in the column with the larger total and circled. This is the account balance.

18. Calculating the Balances of an Account
Once you take a look at the account balances, pay attention to what side each one is on. A balance on the debit side is an asset while a balance on the credit side is a liability (or equity).
Take out your handout from yesterday and total the T-Accounts

19. Figure 4.5: Pacific Trucking Ledger with Seven Transactions
PowerPoint 4– Chapter 4
Figure 4.5: Pacific Trucking Ledger with Seven Transactions 19

20. Figure 4.9: Completed Ledger for Pacific Trucking
PowerPoint 4– Chapter 4
Figure 4.9: Completed Ledger for Pacific Trucking 20

21. Exceptional Account Balances
Sometimes, balances will end up on the opposite side than you would expect. These are called exceptional balances
Example: Jack Evans, a customer owes us $50. So that would be accounts receivable, as asset and a debit account. Jack send a cheque for $55. So our asset account has a credit balance of $5. So temporarily the assets account turns into a liability.

22. This is because most businesses do no use cash to do transactions.
Bank instead of Cash
So far we have been using the term “cash”. It is safe to say that we should be using “bank” from now on.
This is because most businesses do no use cash to do transactions.
Bill payments and deposits are made to a bank account for simplicity.
It is easier to send a cheque than a wad of bills.

23. On Account
If an item is purchased on credit, this mean that it is not paid for at the time of purchase. This is a purchase on account
When an item is sold on credit, cash ins received at the time it is sold. This is a sale on account.
If money is paid out to a creditor to decrease the amount owed, it is a payment on account.
When money is received from a debtor to reduce the amount owed, it is a receipt on account.

24. Figure 4.8

25. 4.4 Trial Balance
Once the account balances have been found in the ledger, we can use the information to complete a trial balance.
If the debit and credit numbers are the same then our accounts are in balance.
If the debit and credit numbers are different then our accounts are out of balance.

26. Figure 4.9: Completed Ledger for Pacific Trucking
PowerPoint 4– Chapter 4
Figure 4.9: Completed Ledger for Pacific Trucking 26

27. Methods of Taking off a Trial Balance
Step 1: Write a heading at the top, it must show the name of the individual or business, the title “Trial Balance,” and the date. Step 2: List all of the accounts and their balances. Dollar signs are unnecessary Step 3: Place the debit balances in a debit column and the credit balances in a credit column. Step 4: Add up the two columns. Step 5: See if the tow columns totals are the same. If they are, write the totals and finish by drawing a line above the total and a double line below the totals to indicate they match.

28. PACIFIC TRUCKIN
TRIAL BALANCE
25-Sep-13
Accounts
DEBITS
CREDITS
Bank
215.00
A/R – W. Caruso
150.00
A/R – R. Van Loon
770.00
Supplies
2,665.00
Trucks
63,075.00
Equipment
22,174.00
Bank Loan
18,000.00
A/P – Dini Bros
6,516.00
A/P – Packham Products
4,146.00
B. Rissen, Capital
60,387.00
89,049.00

29. Trial Balance out of Balance
Out of balance means the credit and debits do not match
This means that an error has been made.
If the trial balance is “out of balance” the accountant may want to:
Re-add the trial balance columns
Cross-reference the trial balance figures against those of the T account.
Recalculate the account balances
Check that there is a balanced accounting entry in the accounts for each transaction.

30. Review and application
Do review questions 1-7 and exercises 1-5