ACCG100 Lecture Notes - Lecture 4: General Ledger, The Ledger, Trial Balance

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maroonbutterfly970

1 Sep 2018

School

Macquarie University

Department

Accounting and Corporate Governance

Course

ACCG100

Professor

All

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Document Summary

Week 4: financial accounting for business; posting and trial balance. A ledger is a collection of individual accounts with the account details. Organized in the order they appear in the balance sheet and income statement. Each account has a specific identification number. T-accounts: conventional way to show individual accounts. Illustrate effects of transactions on an account: still used for quick calculations. Running balance accounts (format used for bank statements: used in formal accounting systems. Account format"s: t-accounts (we will be using this format in accg100, convenient way to show individual accounts, still used in practice for quick calculations. Illustrate effects of transactions on an account: running balance accounts (eg format used for bank statements, used in formal accounting systems, standard presentation for computerised systems, familiar to most same format used in bank statements. Debit (dr) side credit (cr) side b/d = bringing down c/d = carry forward.

Related Questions

Transactions related to revenue and cash receipts completed byAspen Architects Co. during the period June 2â30, 2016, are asfollows:

June 2.		Issued Invoice No. 793 to Nickle Co., $7,330.
June 5.		Received cash from Mendez Co. for the balance owed on itsaccount.
June 6.		Issued Invoice No. 794 to Preston Co., $2,640.
June 13.		Issued Invoice No. 795 to Shilo Co., $3,930.
		Post revenue and collections to the accounts receivablesubsidiary ledger.
June 15.		Received cash from Preston Co. for the balance owed on June1.
June 16.		Issued Invoice No. 796 to Preston Co., $8,210. Post revenue and collections to the accounts receivablesubsidiary ledger.
June 19.		Received cash from Nickle Co. for the balance due on invoice ofJune 2.
June 20.		Received cash from Preston Co. for invoice of June 6.
June 22.		Issued Invoice No. 797 to Mendez Co., $10,820.
June 25.		Received $2,990 note receivable in partial settlement of thebalance due on the Shilo Co. account.
June 30.		Recorded cash fees earned, $18,460. Post revenue and collections to the accounts receivablesubsidiary ledger.

Required:

1. Insert the following balances in the generalledger as of June 1:

11	Cash	$16,240
12	Accounts Receivable	19,780
14	Notes Receivable	8,610
41	Fees Earned	-

After completing the recording of the transactions in thejournals in part 3, total each of the columns of the specialjournals, and post the individual entries and totals to the generalledger. Insert account balances after the last posting. Whenposting to the general ledger, post in chronological order.However, if there is more than one entry on the same date, be sureto post transactions from the revenue journal before postingtransactions from the cash receipts journal.

If an amount box does not require an entry, leave it blank.

GENERAL LEDGER
Date	Item	Post. Ref.	Debit	Credit	Balance Dr.	Balance Cr.

Account: Cash # 11
2016
June 1	Balance	â


Account: Accounts Receivable # 12
2016
June 1	Balance	â



Account: Notes Receivable # 14
2016
June 1	Balance	â

Account: Fees Earned # 41
2016

2. Insert the following balances in theaccounts receivable subsidiary ledger as of June 1:

Mendez Co.	$11,370
Nickle Co.	-
Preston Co.	8,410
Shilo Co.	-

After completing the recording of the transactions in thejournals in part 3, post to the accounts receivable subsidiaryledger in chronological order, and insert the balances at thepoints indicated in the narrative of transactions. Determine thebalance in the customer's account before recording a cash receipt.If an amount box does not require an entry, leave it blank.

ACCOUNTS RECEIVABLE SUBSIDIARY LEDGER
Date	Item	Post. Ref.	Debit	Credit	Balance
Account: Mendez Co.
2016
June 1	Balance	â


Account: Nickle Co.
2016


Account: Preston Co.
2016
June 1	Balance	â




Account: Shilo Co.
2016

3. Prepare a single-column revenue journal (p.40) and a cash receipts journal (p. 36). Use the following columnheadings for the cash receipts journal: Fees Earned Cr., AccountsReceivable Cr., and Cash Dr. The Fees Earned column is used torecord cash fees.

4. Using the two special journals and thetwo-column general journal (p. 1), journalize the transactions inchronological order for June. Post to the accounts receivablesubsidiary ledger (in part 2), and insert the balances at thepoints indicated in the narrative of transactions. Determine thebalance in the customer's account before recording a cashreceipt.

5. Total each of the columns of the specialjournals, and post the individual entries and totals to the generalledger (in part 1). Insert account balances after the lastposting.

If an amount box does not require an entry, leave it blank.

REVENUE JOURNAL				PAGE 40
Date	Invoice No.	Account Debited	Post. Ref.	Accounts Rec. Dr. Fees Earned Cr.
2016
			â
			â
			â
			â
			â

CASH RECEIPTS JOURNAL					PAGE 36
Date	Account Credited	Post. Ref.	Fees Earned Cr.	Accts. Rec. Cr.	Cash Dr.
2016
		â
		â
		â
		â
		â

JOURNAL				PAGE 1
Date	Description	Post Ref.	Debit	Credit
2016

6. What is the sum of the customerbalances?
$

Does the sum of the customer balances agree with the accountsreceivable controlling account in the general ledger?

7. Would an automated system omit postings to acontrolling account as performed in step 5 for AccountsReceivable?

yellowcaribou307

Purchases and Cash Payments Journals; Accounts Payable Subsidiary and General Ledgers

AquaFresh Water Testing Service was established on April 16. AquaFresh uses field equipment and field supplies (chemicals and other supplies) to analyze water for unsafe contaminants in streams, lakes, and ponds. Transactions related to purchases and cash payments during the remainder of April are as follows:

April 16.		Issued Check No. 1 in payment of rent for the remainder of April, $3,500.
April 16.		Purchased field supplies on account from Hydro Supply Co., $5,340.
April 16.		Purchased field equipment on account from Pure Equipment Co., $21,450.
April 17.		Purchased office supplies on account from Best Office Supply Co., $510.
April 19.		Issued Check No. 2 in payment of field supplies, $3,340, and office supplies, $400.
		Post the journals to the accounts payable subsidiary ledger.
April 23.		Purchased office supplies on account from Best Office Supply Co., $660.
April 23.		Issued Check No. 3 to purchase land, $140,000.
April 24.		Issued Check No. 4 to Hydro Supply Co. in payment of April 16 invoice, $5,340.
April 26.		Issued Check No. 5 to Pure Equipment Co. in payment of April 16 invoice, $21,450.
		Post the journals to the accounts payable subsidiary ledger.
April 30.		Acquired land in exchange for field equipment having a cost of $12,000.
April 30.		Purchased field supplies on account from Hydro Supply Co., $7,650.
April 30.		Issued Check No. 6 to Best Office Supply Co. in payment of April 17 invoice, $510.
April 30.		Purchased the following from Pure Equipment Co. on account: field supplies, $1,340, and field equipment, $4,700.
April 30.		Issued Check No. 7 in payment of salaries, $29,400.
		Post the journals to the accounts payable subsidiary ledger.

Required:

1. Journalize the transactions (in chronological order as presented in the data) for April. Use a purchases journal and a cash payments journal, and a two-column general journal. Use debit columns for Field Supplies, Office Supplies, and Other Accounts in the purchases journal. Refer to the following partial chart of accounts:

11	Cash	19	Land
14	Field Supplies	21	Accounts Payable
15	Office Supplies	61	Salary Expense
17	Field Equipment	71	Rent Expense

At the points indicated in the narrative of transactions, post to the following accounts in chronological order in the accounts payable subsidiary ledger:

Best Office Supply Co.

Hydro Supply Co.

Pure Equipment Co.

For those boxes in which no entry is required, leave the box blank. If no other account is needed in the "Other Accounts Dr." column select "No Entry Required".

PURCHASES JOURNAL								PAGE 1
Date	Account Credited	Post. Ref.	Accounts Payable Cr.	Field Supplies Dr.	Office Supplies Dr.	Other Accounts Dr.	Post. Ref.	Amount
April 16	Hydro Supply Co.	?				No Entry Required
April 16	Pure Equipment Co.	?				Field Equipment
April 17	Best Office Supply Co.	?				No Entry Required
April 23	Best Office Supply Co.	?				No Entry Required
April 30	Hydro Supply Co.	?				No Entry Required
April 30	Pure Equipment Co.	?				Field Equipment
April 30

CASH PAYMENTS JOURNAL						PAGE 1
Date	Ck. No.	Account Debited	Post. Ref.	Other Accounts Dr.	Accounts Payable Dr.	Cash Cr.
April 16		Rent Expense
April 19		Field Supplies
		Office Supplies
April 23		Land
April 24		Hydro Supply Co.	?
April 26		Pure Equipment Co.	?
April 30		Best Office Supply Co.	?
April 30		Salary Expense
April 30		Total

JOURNAL				PAGE 1
Date	Description	Post. Ref.	Debit	Credit
April 30	Land
	Field Equipment

2. Post the individual entries in chronological order (Other Accounts columns of the purchases journal and the cash payments journal and both columns of the general journal) to the appropriate general ledger accounts. Post to the subsidiary ledger in chronological order. When posting to the general ledger, post in chronological order. However, if there is more than one entry on the same date, post transactions from the purchases journal first, then the cash payments journal before posting from the general journal.

3. Total each of the columns of the purchases journal and the cash payments journal, and post the appropriate totals to the general ledger.

For those boxes in which no entry is required, leave the box blank.

ACCOUNTS PAYABLE SUBSIDIARY LEDGER
Date	Item	Post. Ref.	Debit	Credit	Balance
Account: Best Office Supply Co.
April 17
April 23
April 30
Account: Hydro Supply Co.
April 16
April 24
April 30
Account: Pure Equipment Co.
April 16
April 26
April 30

Post transactions in chronological order. However, if there is more that one transaction on the same date, post from the purchases journal first, then from the cash payments journal before posting from the general journal. (Because the problem does not include transactions related to cash receipts, the cash account in the ledger will have a credit balance.)

GENERAL LEDGER
					Balance
Date	Item	Post. Ref.	Debit	Credit	Dr.	Cr.
Account: Cash #11
April 30
Account: Field Supplies #14
April 19
April 30
Account: Office Supplies #15
April 19
April 30
Account: Field Equipment #17
April 16
April 30
April 30
Account: Land #19
April 23
April 30
Account: Accounts Payable #21
April 30
April 30
Account: Salary Expense #61
April 30
Account: Rent Expense #71
April 16

4. Prepare a schedule of the accounts payable creditor balances.

AQUAFRESH WATER TESTING SERVICE Accounts Payable Creditor Balances April 30
Best Office Supply Co.	$
Hydro Supply Co.
Pure Equipment Co.
Total accounts payable	$

5. All are reasons why AquaFresh might consider using a subsidiary ledger for the field equipment EXCEPT:

To secure lower pricing on equipment purchases

lemonwasp608

This is for AC1420: Week 2 trial balance (ITT Tech) not sureexactly where to start if someone can help

Based on the lesson presentation and readings for this week,prepare a one- to two-page document listing a minimum of fiveadjusting entries to a trial balance, explaining the purpose ofeach of these entries.
Make sure you include both the debit and credit entry for eachadjusting entry. Specify in your response whether these entrieswill increase or decrease the profits in the current period.

Accounting Information Systems
Throughout the chapters of this book, you have been keeping trackof Team Shirtsâ transactions using an accounting equation worksheet. We can do that in a simple world with a small number oftransactions. In the real world, that wouldnât work very well. Acompany in the real world needs a better system to keep track ofthe large number of transactions represented in the four basicfinancial statements. A company may have an accounting system thatgathers only accounting informationâjust recording the informationthat applies to the financial statementsâand other informationsystems gathering information for marketing, production, and otherparts of the company. Alternatively, a company may have a single,integrated information system in which all company information isrecordedâdata about suppliers, employees, operations; and theaccounting information is simply a small part.
The firmâs accounting information is kept in the firmâs generalledger. The general ledger is the collection of a companyâsaccounts where the amounts from the firmâs transactions areorganized and stored. You can think of it as a big book with a pagefor every asset, liability, equity, revenue, and expense account.Later in this appendix, you will learn how transactions getrecorded in a companyâs general ledger. For years, the generalledger system was maintained by the accounting department as aseparate information system; and the other functional areas of thebusinessâmarketing, production, sales, etc.âeach had its own systemfor keeping track of the information it needed. Since thedevelopment of computers and software programs that can managelarge amounts of information, more and more companies are using asingle, integrated information system. Thus, instead of keepingtheir data separately, accountants may get rprise-wide resourceplanning system (ERP).
No matter how it is related to the rest of a firmâs informationsystem, the accounting system is still called the general ledgersystem. The same financial statements are produced with both thegeneral ledger and the integrated types of information systems. Inthis appendix, we will use the general ledger system, which wasdesigned as a manual system, to demonstrate how transactions arerecorded, classified, and summarized for the financialstatements.
The General Ledger Accounting System
Keeping track of financial information with a traditionalrecord-keeping system is often called bookkeeping. As transactionsoccur, they are recorded chronologically by a bookkeeper in a bookcalled a journal. When we prepare an accounting equation work sheetshowing the effect of each transaction on the accounting equation,we are doing something similar to recording a transac- tion in ajournal. The resources exchanged are shown with their dollaramounts. The journal con- tains a record of each transaction as itoccurs. An example is shown in Exhibit B.1. In the next section,youâll learn how the âdebitsâ and âcreditsâ columns are used. Fornow, just notice that all of the accounts affected by thetransaction are used in a journal entry. Most companies use morethan one journal; each department may have its own journal. Commonjournals are the (1) sales journal, (2) cash receipts journal, and(3) cash disbursements journal. For simplicity, weâll use a single,general journal for all our transactions.

ge 4: General Journal
Ref.
J-1
J-2
Date Journal entry Debits Credits
June 1 Cash . . . . . . . . . . . . . . . .. . . . . . . . . . . . . . . . . . . . . . . . . . . . . .. 65,000 Sales . . . . . . . . . . . . . . . . . . . .. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .. . 65,000
To record the collection of cash for sales. June 4 Equipment . . . . . . . . . . . . . . . . . . . . . . .. . . . . . . . . . . . . . . . . . . 20,600
Cash . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .. . . . . . . . . . . . . . . . . . . . . . . . . 20,600 To record the purchase of equipment for cash.
The journal entries are recorded chronologically. Then, theindividual items are âregroupedâ by account as they are posted tothe general ledger. Trace the cash amounts in the journal entriesto the general ledger cash account shown in Exhibit B.2 on page566. The amounts for sales and equipment will be posted to theirown general ledger accounts

Because a company may have hundreds or even thousands oftransactions during an account- ing period, it would be difficult,probably impossible, to try to gather and use the information froma chronological record such as the journal. To be useful, theinformation needs to be reorganized, grouping together transactionsthat involve the same account. For example, when all the transac-tions that involve cash are grouped together, then the companyâscash balance can be easily deter- mined. As you can see from thatexample, it is useful for similar transactions to be groupedtogether. The transactions from the journal or journals aretransferred to another book called the general ledger through aprocess called posting the transactions to the general ledger.Posting is done periodically; it could be daily, weekly, ormonthly, depending on the size of the company.
The general ledger is the primary record of the financialinformation of the business. It is organized by accounts. As youread earlier in this book, an account is the basic classificationunit of accounting information. You can think of each financialstatement item as an account, and each account as a page in thegeneral ledger. On the page for a particular account, we record allthe additions to, and deductions from, that account.
For example, one account in the general ledger is cash. On the cashpage in the general ledger, we find every cash collection and everycash disbursement made by the company. If there are moredisbursements or collections than can fit on one page, they will berecorded on as many following pages as needed, all comprising thecash account. To make it easy to find the amount of cash on hand,the cash account has a running balance. That means a new balance iscalculated after every entry. Think about your own checkbookâthatâsthe record you keep of each check you write (a subtraction); eachdeposit you make (an addition); and the resulting total remainingin your checking account (thatâs your running balance). If you keepa running balance, it is much faster to find out how much cash youhave in your account. (Have you discovered what happens when youfail to keep your checkbook balance current?)
Accounts in the general ledger include cash, accounts receivable,inventory, prepaid insurance, equipment, accumulated depreciation,accounts payable, notes payable, contributed capital, and retainedearnings. (Notice, these are given in the order in which theyappear on the balance sheet.) How many accounts does a companyhave? Every company is different, and the number of accountsdepends on the detail the company wants in its financial records.For example, one company could have an account called utilitiesexpenses in which many different utility-related expenses could beaccumulated. Another company might prefer to have a separateaccount for each type of utility expenseâa separate page in thegeneral ledger for electricity expense, gas expense, water expense,etc. The number of accounts is determined by the amount of detail acompany wants to be able to retrieve from its records. If a companyuses very little gas or water, it would be a waste of time andspace to keep a separate account for those expenses. A company thatuses water in its production process, on the other hand, woulddefinitely want to keep a separate account for waterpurchases.
Companies also have subsidiary ledgers. These are detailed recordsthat support the bal- ances in the general ledger. For example, theaccounts receivable subsidiary ledger will have details about thecredit customersâsales, receipts, and account balances for everycustomer. The total dollar amount of accounts receivable in theaccounts receivable subsidiary ledger will be the total in thegeneral ledger.
Most companies have a large number of accounts, and they combinethe similar ones for the financial statements. When we look at thefinancial statements, we canât really tell how many individualaccounts a company has in its general ledger. Many smaller accountsmay be com- bined for financial statement presentation.
Anyone in the firm with access to the accounting records who wantsto know the balance in any account at any time can find it bylooking in the general ledger. A list of the balances in all theaccounts of a company is called a trial balance.
Before the financial statements can be prepared, adjustments to therecords must be made. We discussed those adjustments and how tomake them in Chapter 3. Adjustments are needed because of thenature of accrual accounting. On the financial statements, we needto include revenues that have been earned and expenses that havebeen incurred, even if we have not yet received the cash earned orpaid the cash for the expenses incurred during the accountingperiod. These adjustments are called accruals. The action has takenplace, but the dollars have not been exchanged.
We also need to be sure to include on the income statement for theperiod any revenue weâve earned or expenses weâve incurred forwhich the dollars were exchanged at a previous time. These arecalled deferrals. The dollars were already exchanged, and werecorded the receipt of the cash when we received the cash.However, we did not recognize any revenue or expense at that time.At the end of the accounting period, we have to recognize anyrevenue we have earned and any expenses that weâve incurred.
No matter what kind of accounting system a company uses, theinformation produced by that system must be adjusted before thefinancial statements can be prepared. After the adjustments aremade, the financial statements are prepared. We have actually doneall thisârecording the transac- tions, making the adjustments, andpreparing the financial statementsâusing the accounting equationwork sheet. The general ledger system is simply a more feasible wayto do it in an actual business.
Debits and Credits
To use the general ledger system and to understand the informationit makes available, we must learn a bit more accounting language.Donât panic over the terms debit and credit. You will find themeasy to understand, but only if first you get rid of any notions ofwhat you already think debit and credit mean. In accounting, eachterm has a very specific meaning that should not be confused withits more general meaning.
In accounting, when we say debit, we mean the left side; when wesay credit, we mean the right side. (This should be easy toremember.) Left is the only thing that the word debit means andright is the only thing that the word credit meansâunless we applythe terms to specific accounts.

A general ledger has been traditionally composed of amulticolumn page, similar to the one shown in Exhibit B.2. TheDebit column on the right shows the running balance in the cashaccount. You would almost never see a credit balance in thisaccount. The general ledger is often computerized in a similarformat.
In the balance columns, the column on the left is called the debit(DR) column, and the column on the right is called the credit (CR)column. As a shortcut to using formal preprinted two-column paper,accountants often draw a T-account to represent a page in thegeneral ledger. T-accounts shown in Exhibit B.3 are ourrepresentation of the general ledger shown in Exhibit B.2. OneT-account such as cash, shown next, represents a single page in thegeneral ledger. The left side of a T-account is the debit side, andthe right side of a T-account is the credit side.
Cash
Debit Credit
Numbers we put on the left side of the account are called debits,and putting a number in the left column is called debiting anaccount. Debit is a wonderful word that can be an adjective, anoun, or a verb. The same goes for the word credit. The right sideof the account is called the credit side, the numbers we put on theright side are called credits, and putting a number in the rightcolumn is called crediting an account.
In the fifteenth century, a monk named Fra Luca Paccioli wroteabout a system that uses debits and credits with the accountingequation. In his system, the accounting equation stays in balancewith each transaction and the monetary amounts of debits andcredits are equal for each transaction. Hereâs how it works:
1. For the accounting equation, the balance in the accounts on theleft side of the equa- tion (assets ) will increase with debits;and the balance in the accounts on the right side of the equation(liabilities and shareholdersâ equity ) will increase with credits.It follows that the balance in an asset account will decrease withcredits. Liability and equity account balances decrease withdebits. Putting that together,
â¢ asset accounts are increased with debits anddecreased with credits. â¢ liability and shareholdersâequity accounts are increased with credits and decreased
with debits.
This means that when we want to add an amount to our cash balance,we put the number of that amount on the left (in the left column ofthe two columns in the general ledger account for cash)âso thatâs adebit. When we disburse cash and want to subtract the amountdisbursed from the cash account, we put the number of that amounton the right sideâso thatâs a credit. The increase side of anaccount is called its ânormalâ balance. Cash has a normal debitbalance. Because we put the cash we receive on the debit side andthe cash we disburse on the credit side, it makes sense that ourcash account will normally have a debit balance. (Itâs not normalto dis- burse more cash than you haveâitâs pretty unusual.)
In accounting, we do not literally add and subtract from an accountbalanceâwe debit and credit an account to accomplish the samething. If we make an error, we do not erase the mistake and replaceit with the correct answer. Instead, we debit or credit the accountto cor- rect the error and make the account balance correct. Whenaccounting records are kept by hand, all entries are made in ink sothat no entries can be erased or changed. This has been traditionalin accounting to keep the records from being altered. Recordingevery increase to, and decrease from, an account balance gives acomplete record of every change made to the account.
2. Because shareholdersâ equity is increased with credits, allaccounts that increase share- holdersâ equity will increase withcredits. Revenue accounts increase with credits and decrease withdebits. When we make a sale, we credit the sales account.
3. Because shareholdersâ equity is decreased with debits, allaccounts that decrease share- holdersâ equity work in the oppositeway as revenue accounts work. For example, expense accountsâwhere alist of our expenses is keptâincrease with debits. As we incurexpenses, we put the amounts on the left side of expenseaccounts.

The Accounting Cycle
The process that starts with recording individual transactions,produces the four basic financial statements, and gets our generalledger ready for the next accounting period is called theaccounting cycle. Some of the steps in the accounting cycle wonâtmake any sense to you yet, but this appendix examines each indetail. By the end of this appendix, you should be able to explainand perform each step. The steps in the accounting cyclefollow:
1. Record transactions in the journal, the chronological record ofall transactions, from source documents such as invoices. These arecalled journal entries.
2. Post the journal entries to the general ledger. 3. At the end ofthe accounting period, prepare an unadjusted trial balance. 4.Prepare adjusting journal entries and post them to the generalledger. 5. Prepare an adjusted trial balance. 6. Prepare thefinancial statements. 7. Close the temporary accounts. 8. Prepare apostclosing trial balance.
Letâs look at each of these steps in detail.
Step 1: Recording Journal Entries
In the normal course of business, many transactions must berecorded in the accounting system. Letâs look at how thetransactions for a companyâs first year of business would berecorded in a jour- nal. The transactions for the first year ofClintâs Consulting Company, Inc., are shown in Exhibit B.4.

Step 1: Recording Journal Entries
In the normal course of business, many transactions must berecorded in the accounting system. Letâs look at how thetransactions for a companyâs first year of business would berecorded in a jour- nal. The transactions for the first year ofClintâs Consulting Company, Inc., are shown in Exhibit B.4.
The first transaction in Clintâs first year of business is his owncontribution of

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ACCG100 Lecture Notes - Lecture 4: General Ledger, The Ledger, Trial Balance

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