1 RECORDING TRANSACTION TO GENERAL LEDGER To simplify of recording transaction in a company needs a basic procedure To Process of recording transaction needs some accounts and general ledger

2 A. DEFINITION of ACCOUNTS, GENERAL LEDGER, and KINDS of ACCOUNTS An account is simply a class of information in an accounting system. It involves accounts of assets, liabilities, equities, income, and expenses Examples: Cash, Supplies, Accounts Payable, Capital, Services Revenue, Salaries Expense

3 General ledger is just a book containing all the company’s accounts A manual (handwritten) bookkeeping system generally uses ledger to classify business transactions by account Each page of the ledger usually represents one account General Ledger

4 Usefulness of an Account A group of accounts for a business entity is called a ledger A list of the accounts in the ledger is called a chart of accounts A chart of accounts is designed to meet the information needed for company’s managers and other users of their financial statements

5 Account Classification Account in General Ledger Real Account Nominal Account Assets Accounts Liabilities Accounts Equities Accounts Income Accounts Expenses Accounts

6 Characteristics of an Account The simplest form of an account has three parts:  Each account has a title which is the name of the item recorded in the account  Each account has a space to record increases in the amount of the item  Each account has a space to record decreases in the amount of the item

7 Form of Accounts A simplest T – Form of Accounts Name of Account (Left side/ debit) (Right side/ Credit)

8 Name of account is in list heading The date column is used to record the transaction time occurred The description column is used to record a description related to the transaction F-column is filled journal page when posting to general ledger is done

9 A Completely T – Form of Accounts DateDescriptionRefAmountDateDescriptionRefAmount Debit SideCredit Side Number: Name of Account

10 Cash Date Descriptio n RefAmountDateDescriptionRefAmount 2008 Oct 1Investment300, Oct 4Vehicle Maintenance expense Rent xpenses 8,000 17,000 2Bank Loan150,000Salaries exp Miscellaneous exp 16,000 1,000 6Receivable Collections 100,0007Pays bank loan Interest exp 5, Debit Balance 482,400 8Prive20,000 Transaction Recording in Cash 550,000 67,600

11 The Rules of Recording in Account DEBITCREDIT Increase in Assets Accounts Decrease in Liabilities Accounts Decrease in owner’s Equity Decrease in Assets Accounts Increase in Liabilities Accounts Increase in owner’s Equity

12 The Rules of Debit and Credit on Assets To INCREASE an ASSET – type account, enter the amount on the DEBIT side To DECREASE an ASSET – type account, enter the amount on the CREDIT side All assets accounts should have DEBIT BALANCE at the end of the period because increases can be expected to exceed decreases

13 To INCREASE a LIABILITY and an EQUITY – type account, enter the amount on the CREDIT side To DECREASE a LIABILITY and an EQUITY – type account, enter the amount on the DEBIT side All liabilities and equity accounts should have CREDIT BALANCES at the end of the period, because increases can be expected to exceed decreases The Rules of Debit and Credit on Liabilities and Equity

14 Types of an Equity Accounts Owner’s Equity Account Owner’s Withdrawal Account Revenue Account Expenses Account Revenue and Expenses Accounts are called Nominal Account/ Income Statement Accounts

15 The Rules of Debit and Credit in Income and Expenses Debit for Increasing (+) Credit for Decreasing (-) Expenses Debit for Decreasing (-) Credit for Increasing (+) Income

16 The Rules of Debit and Credit in Real Account on Balance Sheet Debit (+) Credit (-) Assets Debit (-) Credit (+) Liabilities Normal Balance Debit (-) Credit (+) Owner’s Equity Normal Balance Balance Sheet

17 The Rules of Debit and Credit to Real Account in Accounting Equation Debit (+) Credit (-) Assets Debit (-) Credit (+) Liabilities Debit (-) Credit (+) Owner’s Equity = +

18 ASSET ACCOUNTS = LIABILITY ACCOUNTS + CAPITAL ACCOUNTS Increases are recorded on the left or debit size Decreases are recorded on the right or credit side Decreases are recorded on the left or debit side Increases are recorded on the right side or credit side Decreases are recorded on the left or debit side Increases are recorded on the right side or credit side The Rules of Debit and Credit to Real Account in Accounting Equation DEBIT balances for ASSETS CREDIT balances for EQUITIES

19 The Rules of Debit and Credit to Nominal Account in Equities Account Equities Debit (+) Credit (-) Debit Credit Debit (-) Credit (+) Expenses Income Normal Balance

20 The Rules of Debit and Credit and Normal Balance in Each Accounts Group AccountIncreasingDecreasingBalance Assets Liabilities Owner’s Equity Income Expenses Debit Credit Debit Credit Debit Credit Debit Credit Debit

21 Analyzing the Impact of Business Transaction to the Accounts The Analysis of transaction is a critical step in accounting cycle This step will have an impact to the following steps It is used to understand the impact of transaction to the accounts in accounting equation

22 Each business transaction will cause at least two accounts and the sum of debit must be equal to the sum of credit This equality of debit and credit for each transaction is built into the accounting equation: Assets = Liabilities + Owner’s Equity It is also because of this double equality that the system is known as double-entry accounting

23 Recording transaction in Account Examples: Transaction 1: January, 02, 2008, Kartika established a Transportation and Travel Company named “Widya, Co”. She invested Cash Rp. 1,000,000,000 and Office Supplies Rp. 15,000,000. Those transactions will be recorded on the accounts as follows:

24 Transaction Analysis Transaction 1 will cause: a.Asset account (Cash and Office Supllies) and Equity (Kartika’s Capital) increase b.Debited : Cash Rp. 1,000,000,000 Debited : Office Supplies Rp. 15,000,000 Credited: Kartika’s Capital Rp. 1,015,000,000

25 Recording Transaction on Accounts Cash 1. Rp. 1,000,000,000 Office Supplies 1. Rp. 15,000,000 Kartika’s Capital 1. Rp. 1,015,000,000

26 Transaction 2: January, 22, 2008, “Widya, Co” purchased building at cost Rp. 700,000,000. This building is used to operational of office activities Transaction Analysis a.This transaction will change one asset to another asset (Cash Building) b.Debited : Building Rp. 700,000,000 Credited : Cash Rp. 700,000,000

27 Recording Transaction on Accounts Cash Building 2. Rp. 700,000,000