BAF3M Accounting
Chapter 4 – The Simple Ledger

4.1 Ledger Accounts
• An Account is a page designed to record the changes in each individual item that affects financial position
• A ledger is a group or file of accounts

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 on the B/S has its own page in the ledger

4.1 Ledger Accounts
• Its key to understand what side of the ledger the beginning balance is on
• ASSETS LEFT
• LIABILITIES + OE RIGHT

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
DEBIT CREDIT ASSET accounts
LEFT
LIABILITY
&
OWNER’S
EQUITY accounts
RIGHT CREDIT DEBIT

• 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

• Interpreting the Balance of an Account
• Exceptional Account Balances
• The Bank Account
• Buying & Selling on Credit

4.4 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

4.4 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

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
Account Receivable - B. Cava
Account Receivable - K. Lincoln
Equipment
Trucks
Account Payable - Central Supply
Loan Payable - Mecury Finance
Capital - J. Hofner
$ 8 7 5 -
2 8 0 0 -
1 4 0 0 -
13 4 5 0 -
42 5 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
NO
Sometimes the errors made were incorrect entries that just happened to be balanced .. This takes some skill to detect and solve