1. First Canadian Edition Price • Haddock • Brock • Hahn • Reed
College
Accounting
First Canadian Edition
Price • Haddock • Brock • Hahn • Reed
Throughout this presentation I will be referring to the Price text entitled College Accounting, First Canadian edition
McGraw-Hill Ryerson 1

2. THE GENERAL LEDGER AND FINANCIAL STATEMENTS
CHAPTER 4
THE GENERAL LEDGER
AND FINANCIAL
STATEMENTS 2

3. Post to the general ledger.
OBJECTIVE 1
Post to the general ledger. 3

4. GENERAL LEDGER The master reference file for the accounting system.
Provides a permanent, classified record of every financial element involved in a firm’s operations. 4

5. All the accounts together are referred to as a ledger.
DATE EXPLANATION POST. DEBIT CREDIT BALANCE
REF DEBIT CREDIT
20X5
Nov J , ,000.00
ACCOUNT Cash ACCOUNT NO
DATE EXPLANATION POST. DEBIT CREDIT BALANCE
REF DEBIT CREDIT
20X5
Nov J , ,000.00
ACCOUNT John Arrow, Capital ACCOUNT NO
A GROUP OF ACCOUNTS IS CALLED A LEDGER.
IN THIS CHAPTER, WE WILL BE WORKING WITH THE GENERAL LEDGER.
All the accounts together are referred to as a ledger.
In this chapter you will be working with the general ledger. 5

6. ACCOUNT Cash ACCOUNT NO.
GENERAL JOURNAL Page
POST.
DATE DESCRIPTION REF DEBIT CREDIT
20X5
Nov Cash ,000.00
John Arrow, Capital Beginning investment of
owner
1001
3001
ACCOUNT Cash ACCOUNT NO.
POST BALANCE
DATE EXPLANATION REF DEBIT CREDIT DEBIT CREDIT
1001
20X5
Nov. 6 J1
40,000.00
40,000.00
ACCOUNT John Arrow, Capital ACCOUNT NO POST BALANCE
DATE EXPLANATION REF DEBIT CREDIT DEBIT CREDIT
3001 J1
40,000.00
40,000.00
20X5
Nov. 6 6 23

7. 2 3 1 5 4 GENERAL JOURNAL Page 1 ACCOUNT Prepaid Rent ACCOUNT NO. 7
POST.
DATE DESCRIPTION REF DEBIT CREDIT
20X5
Nov Prepaid Rent ,000.00
Cash ,000.00
Paid rent in advance for
an eight-month period
(December 20X5 through
July 20X6),
Cheque1001 2
1031 5 1 3
ACCOUNT Prepaid Rent ACCOUNT NO.
POST BALANCE
DATE EXPLANATION REF DEBIT CREDIT DEBIT CREDIT
1031
20X5
Nov. 7 4 J1
20,000.00
20,000.00 7

8. This is an example of the Cash account.
ACCOUNT CASH ACCOUNT NO
POST BALANCE
DATE EXPLANATION REF DEBIT CREDIT DEBIT CREDIT
20X5
Nov J1 40, ,000.00
7 J , ,000.00
J , ,000.00
J , ,000.00
J , ,000.00
Dec J2 10, ,500.00
J , ,000.00
J , ,500.00
J ,200.00
J , ,200.00
This is an example of the cash ACCOUNT.
There is a separate account for each item listed in the chart of accounts.
This is an example of the Cash account.
This type of document is called a balance ledger form.
This type of accounts is called a BALANCE LEDGER FORM. 8

9. A journal entry made to correct an erroneous entry.
CORRECTING ENTRY
A journal entry made to correct an erroneous entry.
Made when the journal entry that contains an error has already been posted.
Must be journalized and posted. 9

10. Prepare a trial balance
OBJECTIVE 2
Prepare a trial balance
From the ledger. 10

11. TRIAL BALANCE
The trial balance is prepared after transactions have been recorded and account balances have been determined.
The trial balance is prepared to determine whether total debits equal total credits. 11

12. POSTED GENERAL LEDGER ACCOUNTS
ACCOUNT CASH ACCOUNT NO
POST BALANCE
DATE EXPLANATION REF DEBIT CREDIT DEBIT CREDIT
20X5
Nov J1 40, ,000.00
7 J , ,000.00
J , ,000.00
J , ,000.00
J , ,000.00
Dec J2 10, ,500.00
J , ,000.00
J , ,500.00
J ,200.00
J , ,200.00
This is an example of the cash ACCOUNT.
There is a separate account for each item listed in the chart of accounts.
POSTED GENERAL LEDGER ACCOUNTS
This type of accounts is called a BALANCE LEDGER FORM. 12

13. ARROW EMPLOYMENT SERVICES
Trial Balance
December 31, 20X5
ACCOUNT NAME DEBIT CREDIT
Cash ,200.00
Accounts Receivable ,000.00
Supplies ,000.00
Prepaid Rent ,000.00
Equipment ,000.00
Accounts Payable ,000.00
John Arrow, Capital ,000.00
John Arrow, Drawing ,000.00
Fees Income ,000.00
Salaries Expense ,500.00
Utilities Expense
Totals , ,000.00
THERE ARE THREE PARTS TO THE HEADING AS IN MOST FINANCIAL DOCUMENTS.
THE NAME OF THE COMPANY
THE TITLE OF THE DOCUMENT
THE DATE
THE BODY OF THE REPORT LISTS THE ACCOUNT TITLES AND THEIR BALANCES.
THE BALANCES ARE LISTED UNDER TWO COLUMNS, THE DEBIT COLUMN AND THE CREDIT COLUMN. 13
IT THE DEBIT AND CREDIT BALANCE DO NOT EQUAL, CHECK THE ENTRIES IN YOUR ACCOUNTS.

14. OBJECTIVE 3 Develop a chart of accounts.14

15. CHART OF ACCOUNTS
A chart of accounts is a list of all the accounts used by a business for recording its financial transactions.
Each account is given a number as well as a name.
The number is assigned on the basis of the type of account. 15

16. ARROW EMPLOYMENT SERVICES
Chart of Accounts
Account Number Account Name
Balance Sheet Accounts
ASSETS
Cash
Accounts Receivable
1021………………………………………………… Supplies
1031………………………………………………… Prepaid Rent
1041………………………………………………… Equipment
LIABILITIES
Accounts Payable
OWNER’S EQUITY
John Arrow, Capital
THE FIRST TYPE OF ACCOUNTS IS THE ASSETS.
ASSETS RANGE FROM
IN THIS EXAMPLE, CASH ACCOUNT NUMBER 01 WITHIN THE ASSETS DIVISION.
LETS ANALYZE THE ACCOUNT NUMBER 101
THE FIRST 1 STANDS FOR THE ASSET DIVISION OF THE COA. THE 01 MEANS IT IS THE FIRST ACCOUNT IN THAT DIVISION.
ACCOUNT 111
THE FIRST 1 MEANS IT IS IN THE ASSET DIVISION. THE 11 MEANS IT IS THE ELEVENTH ACCOUNT.
LIABILITIES ARE THE SECOND DIVISION. LIABILITIES ACCOUNT NUMBER RANGE FROM
ACCOUNT NUMBER 202.
THE 2 MEANS THE ACCOUNT IS IN THE LIABILITY DIVISION AND THE 02 MEANS IT IS THE SECOND ACCOUNT WITHIN THAT DIVISION.
Statement of Owner’s Equity Account
John Arrow, Drawing
Income Statement Accounts
REVENUE
Fees Income
EXPENSES
Salaries Expense
Utilities Expense 16

17. PERMANENT, OR REAL, ACCOUNTS
An account that is kept open from one accounting period to the next. 17

18. TEMPORARY, OR NOMINAL, ACCOUNT
An account whose balance is transferred to another account at the end of an accounting period. 18

19. Describe the relationship between assets and expenses.
OBJECTIVE 4
Describe the relationship
between assets and expenses.
UNIT THREE OBJECTIVE IS TO DESCRIBE THE RELATIONSHIP BETWEEN ASSETS AND EXPENSES. 19

20. ASSETS & EXPENSES
Are both increased by debit entries, because both are costs incurred by a business to generate profit.
Assets: resources owned and in use, e.g. Prepaid Rent.
Expenses: resources already used up, e.g. Rent. 20

21. Prepare adjustments for
OBJECTIVE 5
Prepare adjustments for
unrecorded business
transactions.
UNIT FOUR OBJECTIVE IS TO PREPARE ADJUSTMENTS FOR UNRECORDED BUSINESS TRANSACTIONS. 21

22. ADJUSTMENTS OR ADJUSTING ENTRIES
Journal entries made to record business transactions that are not recorded during the accounting period. 22

23. On December 31, 20X5, the supplies on hand total $500.
Supplies Expense
500
Supplies
1,000
500
On December 31, 20X5, the supplies on hand total $500.
$1,000 Balance - $500 On Hand = $500 Supplies Used 23

24. GENERAL JOURNAL Page 3 24 POST. DATE DESCRIPTION REF . DEBIT CREDIT
20X5
Dec Supplies Expense
Supplies
To record the supplies used
during December 24

25. GENERAL JOURNAL Page 3 25 POST. DATE DESCRIPTION REF . DEBIT CREDIT
20X5
Dec Rent Expense ,500.00
Prepaid Rent ,500.00
To record the rent that
expired during December 25

26. PURCHASE OF EQUIPMENT
On November 9 & 10th, the firm purchased equipment at a total cost of $15,000.
This equipment was put to use in December when the firm opened for business.
At the time the equipment was bought, its cost was debited to the asset account Equipment. 26

27. AMORTIZATION
Amortization is the process of allocating the cost of a long-term asset to operations during its expected useful life.
It has been determined that the equipment we have purchased has a useful life of 5 years. 27

28. SALVAGE VALUE
Salvage value is the amount an item can be sold for after it has been used by the business.
The $15,000 worth of equipment we purchased has no salvage value. 28

29. STRAIGHT-LINE AMORTIZATION
One of many different ways to figure amortization.
Formula:
Amortization = Cost - Salvage Value
Estimated months of useful life
The formula results in an equal amount of amortization being charged to each accounting period during the asset’s useful life. 29

30. FORMULA Amortization = Cost - Salvage Value
Estimated months of useful life
Equipment cost $15,000, had 0 salvage and an estimated life of 5 years.
(5 yr. X 12 mo. = 60 months)
Amortization = $15, = $250.00 60 30

31. BOOK VALUE
The portion of an asset’s original cost that has not yet been amortized. 31

32. BOOK VALUE Equipment $15,000 Accumulated Amortization - 25032

33. CONTRA ASSET ACCOUNT
A contra asset account has a balance “contra” or opposite to the normal balance of an asset account.
An example of a contra asset account is: Accumulated Amortization - Equipment. 33

34. Amortization Expense - Equipment Accumulated Amortization-Equipment
250
Accumulated Amortization-Equipment
250 34

35. GENERAL JOURNAL Page 3 35 POST. DATE DESCRIPTION REF . DEBIT CREDIT
20X5
Dec Amortization Expense
Accumulated Amortization
To record the cost of
equipment allocated to
producing revenue in
December 35

36. OBJECTIVE 6 Journalize and post adjusting entries.
UNIT FIVE OBJECTIVE IS TO JOURNALIZE AND POST THE ADJUSTING ENTRIES. 36

37. GENERAL JOURNAL Page 3 37 POST. DATE DESCRIPTION REF . DEBIT CREDIT
20X Adjusting Entries
Dec Supplies Expense
Supplies
31 Rent Expense ,500.00
Prepaid Rent ,500.00
31 Amor. Expense--Equipment
Accum. Amor.--Equipment
ACCOUNT Supplies ACCOUNT NO
POST BALANCE
DATE EXPLANATION REF DEBIT CREDIT DEBIT CREDIT
20X5
Nov J , ,000.00
Dec Adjusting Entry J 37

38. Prepare an adjusted trial balance from the ledger.
OBJECTIVE 7
Prepare an adjusted trial
balance from the ledger.
UNIT SIX OBJECTIVE IS TO PREPARE AN ADJUSTED TRIAL BALANCE FROM THE LEDGER. 38

39. ARROW EMPLOYMENT SERVICES Adjusted Trial Balance
December 31, 20X5
ACCOUNT NAME DEBIT CREDIT
Cash ,200.00
Accounts Receivable ,000.00
Supplies
Prepaid Rent ,500.00
Equipment ,000.00
Accumulated Amortization: Equip
Accounts Payable ,000.00
John Arrow, Capital ,000.00
John Arrow, Drawing ,000.00
Fees Income ,000.00
Salaries Expense ,500.00
Utilities Expense
Supplies Expense
Rent Expense ,500.00
Amortization Expense
Totals , ,200.00
THERE ARE THREE PARTS TO THE HEADING AS IN MOST FINANCIAL DOCUMENTS.
THE NAME OF THE COMPANY
THE TITLE OF THE DOCUMENT
THE DATE
THE BODY OF THE REPORT LISTS THE ACCOUNT TITLES AND THEIR BALANCES.
THE BALANCES ARE LISTED UNDER TWO COLUMNS, THE DEBIT COLUMN AND THE CREDIT COLUMN. 39 32
IT THE DEBIT AND CREDIT BALANCE DO NOT EQUAL, CHECK THE ENTRIES IN YOUR ACCOUNTS.

40. Prepare an income statement, statement of owner’s equity,
OBJECTIVE 8
Prepare an income statement,
statement of owner’s equity,
and balance sheet from the
adjusted trial balance.
UNIT SEVEN OBJECTIVE IS TO PREPARE AN INCOME STATEMENT, STATEMENT OF OWNER’S EQUITY AND BALANCE SHEET. 40

41. ARROW EMPLOYMENT SERVICE
Income Statement
Month Ended December 31, 20X5
Revenue
Fees Income ,000.00
Expenses
Salaries Expense ,500.00
Utilities Expense
Supplies Expense
Rent Expense ,500.00
Amort. Expense--Equipment
Total Expenses ,050.00
Net Income for the Month
7,950.00 41

42. ARROW EMPLOYMENT SERVICE Statement of Owner’s Equity
Month Ended December 31, 20X5
John Arrow, Capital, December 1, 20X ,000.00
Net Income for December ,950.00
Less Withdrawals for December ,000.00
Increase in Capital ,950.00
John Arrow, Capital, December 31, 20X ,950.00 42

43. REPORT FORM
A balance sheet that lists the asset accounts first, followed by liabilities and owner’s equity. 43

44. ARROW EMPLOYMENT SERVICES Balance Sheet December 31, 20X5
Assets
Cash ,200.00
Accounts Receivable ,000.00
Supplies
Prepaid Rent ,500.00
Equipment ,000.00
Less Accumulated Amortization ,750.00
Total Assets ,950.00
Liabilities & Owner’s Equity
Liabilities
Accounts Payable ,000.00
Owner’s Equity
John Arrow, Capital ,950.00
Total Liabilities & Owner’s Equity ,950.00 44

45. ACCOUNT FORM
A balance sheet that lists liabilities and owner’s equity to the right of assets. 45