BAF3/4M
Introduction to Ledger, T-Account & Trial Balance (2 part lesson)
Overview
In this activity you will learn how to record transactions in a T-account General
Ledger and prepare a Trial Balance to see that the ledger is in balance.
Overall Expectations
EIV.02 assess the impact of technology on the
accounting functions in business;
FAV.03 demonstrate an understanding of the basic
procedures and principles of the accounting cycle for
a service business.
Specific Expectations
AF3.01 use accounting or application software to
record transactions for a service business;
FA1.03 identify the users and uses of accounting.
The Ledger: The ledger is used to record business transactions and keep track of
the balances in each specific account. If you wanted to know how much cash the
business has to write a cheque, you would look in the ledger. If you wanted to know
how much the business owes on a bank loan, you would look in the ledger.
T-Accounts: T-Account is an accounting form we use to keep track of the specific
balance in an account. If a business has a total of 25 accounts in the Ledger, there
will be 25 pages with each account having a T-account format page. Below you will
see what a T-account looks like.
BAF3/4M
Introduction to Ledger, T-Account & Trial Balance (2 part lesson)
T- Accounts have 3 basic elements: a title, a debit side (the left side) and a credit side
(the right side)
Watch T-Accounts & The Ledger Part 1 *
DEBITS & CREDITS
• Debit (Dr.) indicates left; Credit (Cr.) indicates right
Entering an amount on the left side is called debiting the account
Entering an amount on the right side is crediting the account
• Debit balance
Debit amounts exceed the credits
• Credit balance
Credit amounts exceed the debits
Tabular Versus Account Form
Tabular Summary
Account Form
CASH
$15,000
CASH
-7,000
1,200
Debit
Credit
1,500
15,000
7,000
-600
1,200
600
-900
1,500
900
-200
600
200
-250
250
600
1,300
-1,300
Balance
8,050
$8,050
Copyright John Wiley & Sons Canada, Ltd.
6
*Note how much easier it is to make sense of the transactions when they are
recorded in the T-Account form*
BAF3/4M
Introduction to Ledger, T-Account & Trial Balance (2 part lesson)
THE DEBIT/CREDIT PROCEDURE
• Debit does not mean increase or decrease
Can be either depending on the type account
• Credit also does not mean increase or decrease
also depends on account type
• Assets are on the debit side of the equation
Increases are also on debit side; decreases on credit side
• Liabilities are on the credit side
Increases are on the credit side; decreases on the debit side
DOUBLE ENTRY ACCOUTING
Each transaction is recorded with equal debits and credits : Every transaction
affects at least two accounts
Total debits always equals total credits
• Accounting equation will always stay in balance
Assets = Liabilities + Owner’s Equity
• Every account has a normal balance
Either debit or credit
•
Balancing the T-account
In order to balance the T-account we follow a three-step process:
1. Total both sides of the T-account
2. Subtract the smaller amount from the bigger
3. Record the balance on the side of the larger
BAF3/4M
Introduction to Ledger, T-Account & Trial Balance (2 part lesson)
THE TRIAL BALANCE
•
•
•
List of accounts and their balances at a specific time
Proves that debits equal credits
Uncovers errors
Watch the video T-Accounts and the Ledger Part 2 *
Step One:
Create a 3 line heading similar to making a balance sheet. WHO, WHAT, DATE
Step Two:
List all asset accounts with their balances. Remember this goes on the DEBIT side
(the right side)
Step Three:
List all liability & equity accounts with their balances. Remember that these are
CREDIT balances and go on the left side (credit side)
Step 4:
Total the debit and credit balances. If they are the same, double underline them. If
they are not the same then a mistake has been made.
BAF3/4M
Introduction to Ledger, T-Account & Trial Balance (2 part lesson)
IF YOU MAKE A MISTAKE & THE TOTALS DO NOT ADD UP, FOLLOW THESE STEPS:
1. Re- add the trial balance columns
2. Check the numbers from the ledger against those in the trial balance. Make
sure that none are missing, none are on the wrong side and none are the
wrong amount.
3. Re-calculate account balances
4. Check that there is a balanced accounting entry in the accounts for each
transaction.
LIMITATIONS OF A TRIAL BALANCE
• Does not prove:
That all transactions have been recorded, or
That the ledger is correct
• Numerous errors may exist even though the trial balance columns agree
Total debits and total credits may be equal, but may still be posted to the wrong
account or in the wrong amount