Accounting Practices 501 Chapter 3 Introduction to the General Ledger Cathy Saenger, Senior Lecturer, Eastern Institute of Technology © Pearson 2011

General Ledger What we have done so far can be compared to “sorting the laundry” We start with a laundry basket full of transactions Ch3A - Intro to Gen Ledger

General Ledger What we have done so far can be compared to “sorting the laundry” One heap of cash receipts (Cash Receipts Journal) One heap of other stuff (General Journal) One heap of credit sales (Sales Journal) One heap of cash payments (Cash Payments Journal) One heap of credit purchases (Purchases Journal) Through the source documents we sort the transactions into their different journals Ch3A - Intro to Gen Ledger

General Ledger What we have done so far can be compared to “sorting the laundry” off you go to BANK! off you go to RENT! off you go to SALES! off you go to CAPITAL! off you go to POWER! off you go to ACCOUNTS RECEIVABLE! Through the journals we sort the transactions into their different accounts Ch3A - Intro to Gen Ledger

General Ledger What we have done so far can be compared to “sorting the laundry” off you go to BANK! off you go to RENT! off you go to SALES! off you go to CAPITAL! off you go to POWER! off you go to ACCOUNTS RECEIVABLE! We now put it all neatly away in the General Ledger (storing the information) Ch3A - Intro to Gen Ledger

General Ledger What we have done so far can be compared to “sorting the laundry” off you go to BANK! off you go to RENT! off you go to SALES! off you go to CAPITAL! off you go to POWER! off you go to ACCOUNTS RECEIVABLE! Let’s look at some examples of posting from the General Journal to the General Ledger Ch3A - Intro to Gen Ledger

Ch3A - Intro to Gen Ledger General Journal (page 1) Date Account Titles Ref no Debit Credit 1 Bank 200,000 Funds Introduced 200,000 Being entry required to record capital contribution Jun 1 : Owner starts business with $200,000 from his personal account Each item from the General Journal is posted to the General Ledger where the information of each individual account is stored Ch3A - Intro to Gen Ledger

Chart of Accounts An index of all accounts, using the same headings as in the accounting equations. Example: Account no Account name 1000 Assets Current assets 1100 ASB cheque account 1120 Accounts receivable control 2000 Liabilities Current liabilities 2200 Accounts payable control 2400 Accrued expenses

Ch3A - Intro to Gen Ledger General Journal (page 1) Date Account Titles Ref no Debit Credit 1 Bank 200,000 Funds Introduced 200,000 Being entry required to record capital contribution Jun 1 : Owner starts business with $200,000 from his personal account A + E + D = L + C + I Dr Dr Dr Cr Cr Cr + Cr + Dr - Dr - Cr Remember this? Ch3A - Intro to Gen Ledger

Ledger account format T form Debit side Credit side Three-column Date Particulars Ref Amount Date Particulars Ref Debit Credit Balance

Ch3A - Intro to Gen Ledger General Journal (page 1) Date Account Titles Ref no Debit Credit 1 Bank 200,000 Funds Introduced 200,000 Being entry required to record capital contribution General Ledger Date Details Ref no Dr Cr Balance BANK (acct no 1100) 1 Funds Introduced GJ1 200,000 200,000 Dr Funds Introduced (acct no 3150) 1 Bank GJ1 200,000 200,000 Cr Ch3A - Intro to Gen Ledger

Ch3A - Intro to Gen Ledger General Journal (page 1) Date Account Titles Ref no Debit Credit 1 Bank 1100 200,000 Funds Introduced 3150 200,000 Being entry required to record capital contribution General Ledger Date Details Ref no Dr Cr Balance BANK (acct no 1100) 1 Funds Introduced GJ1 200,000 200,000 Dr Funds Introduced (acct no 3150) 1 Bank GJ1 200,000 200,000 Cr Ch3A - Intro to Gen Ledger

Ch3A - Intro to Gen Ledger Trial Balance The Trial Balance is now demonstrated, but it should be prepared after all postings have been done The Trial Balance gives a summary of the balances and would indicate whether Debits = Credits Ch3A - Intro to Gen Ledger

Ch3A - Intro to Gen Ledger General Ledger Date Details Ref no Dr Cr Balance BANK (acct no 1100) 1 Funds Introduced GJ1 200,000 200,000 Dr Funds Introduced (acct no 3150) 1 Bank GJ1 200,000 200,000 Cr Trial Balance as at … Dr Cr Bank 200,000 Funds Introduced 200,000 Ch3A - Intro to Gen Ledger

Ch3A - Intro to Gen Ledger General Ledger Date Details Ref no Dr Cr Balance BANK (acct no 1100) 1 Funds Introduced GJ1 200,000 200,000 Dr Funds Introduced (acct no 3150) 1 Bank GJ1 200,000 200,000 Cr Trial Balance as at … Dr Cr Bank 200,000 Funds Introduced 200,000 Ch3A - Intro to Gen Ledger

Ch3A - Intro to Gen Ledger Let’s try another transaction, where GST is accounted for Ch3A - Intro to Gen Ledger

Ch3A - Intro to Gen Ledger General Journal (page 1) Date Account Titles Ref no Debit Credit 2 Vehicles 18,000 GST Paid 2,700 Bank 20,700 Being entry required to record truck purchased Jun 2 : Purchase a truck for $20,700 cash We have already done a transaction where the Bank account was involved. An amount ($200,000) has therefore already been posted to the Bank account Ch3A - Intro to Gen Ledger

Ch3A - Intro to Gen Ledger General Journal (page 1) Date Account Titles Ref no Debit Credit 2 Vehicles 1710 18,000 GST Paid 2330 2,700 Bank 1100 20,700 Being entry required to record truck purchased General Ledger Date Details Ref no Dr Cr Balance BANK (acct no 1100) 1 Funds Introduced GJ1 200,000 200,000 Dr 2 Vehicles 20,700 179,300 Dr GJ1 VEHICLES (acct no 1710) 2 Bank GJ1 18,000 18,000 Dr GST PAID (acct no 2330) 2 Bank GJ1 2, 700 2, 700 Dr Ch3A - Intro to Gen Ledger

Ch3A - Intro to Gen Ledger Trial Balance as at … Dr Cr Bank 179,300 Funds Introduced 200,000 Vehicles 18,000 GST Paid 2,700 $200,000 $200,000 Our Trial Balance would now be as follows: Ch3A - Intro to Gen Ledger

Ch3A - Intro to Gen Ledger Trial Balance as at … Dr Cr Bank 179,300 Funds Introduced 200,000 Vehicles 18,000 GST Paid 2,700 $200,000 $200,000 Dr Cr Yay, we balance! Ch3A - Intro to Gen Ledger