Introduction to ledger accounts

Introduction to ledger accounts
3.1.3 Double entry system What is a ledger? The ledger provides a complete record of financial transactions over the life of the company. The ledger holds account information that is needed to prepare financial statements and includes accounts for assets, liabilities, owners' equity, revenues and expenses. Can you remember the acronym for remembering how to debit and credit these accounts? Mr. Barry A-level Accounting Year 12

General Journal: Recap A-level Accounting Year 12
Richie skipper needs to journalise the following: Received a loan of £20,000 into the bank account Sold goods on credit to T Jones worth £10,000 Introduced a further £20,000 into the business bank account Bank 20,000 Loan 20,000 T Jones 10,000 Sales 10,000 Bank 20,000 Capital 20,000 Mr. Barry A-level Accounting Year 12

A-level Accounting Year 12
Mr. Barry A-level Accounting Year 12

Recording and Reporting what has happened in the past
All businesses must be able to assess whether the business is profitable Recording historic income and expenditure, and producing an income statement, enables this to be done Producing a statement of financial position (balance sheet) enables a business to assess whether they are solvent Mr. Barry A-level Accounting Year 12

Forecasting the future
Based on what happened historically, owners are able to forecast what they anticipate will happen in the future, in the form of cash budgets* or projected income statements and statements of financial position* Note* These will be explored in later topics Mr. Barry A-level Accounting Year 12

Learning Outcomes Explain the purpose of double entry and record simple transactions into the books(Must) Demonstrate an understanding of the three ledgers by drawing up each individual ledger account (Should) Evaluate the importance of double entry in the preparation of financial statements (Could) Mr. Barry A-level Accounting Year 12

Lesson aims To understand the dual aspect (double entry) of book-keeping To be able to complete basic double entry transactions from given information Mr. Barry A-level Accounting Year 12

Getting started For every financial transaction there is a dual aspect – two book-keeping entries in two different ledger accounts Ledger accounts are where the business will record all associated transactions e.g. wages, rent paid, sales (but by customer names), purchases (but by supplier/creditor name) Mr. Barry A-level Accounting Year 12

Debits & Credits Principle of double entry is that for every transaction one account is debited and the other account is credited Debit entries are made on left hand side of the appropriate account & credit are made on the right hand side Remember to follow the same skills used in completing a cash book Mr. Barry A-level Accounting Year 12

Financial statements Note We will explore financial statements in detail in the next topic. For now, all you need to be able to do is understand which accounts go to each statement. Mr. Barry A-level Accounting Year 12

The Layout DEBIT (DR) CREDIT (CR) Date Details Total (£) Date Details Total (£) The amount of the transaction The date of the transaction The account to which the other part of the transaction is posted Mr. Barry A-level Accounting Year 12

DEAD CLIC DEBIT (DR) CREDIT (CR) Date Details Total (£) Date Details Total (£) Expenditure Assets Drawings Liabilities Income Capital Mr. Barry A-level Accounting Year 12

1 Minute Test Can you remember The layout of a T account The acronym for ruling Debit and Credit? End Mr. Barry A-level Accounting Year 12

The Accounting Equation
Recap Assets- Liabilities = Capital The total worth of the business should equal the total assets (what the business owns) – total liabilities (what the business owes) What is meant by the term worth? Mr. Barry A-level Accounting Year 12

Important definitions
Assets Resources that a business owns and uses to run a business and to produce and sell goods and services Non-Current Assets (NCA) and Current Assets (CA) Examples are Machinery (NCA), Buildings (NCA) and Cash (CA) Mr. Barry A-level Accounting Year 12

Liabilities Amounts that the business owed to third parties Non-Current Liabilities (NCL) and Current Liabilities (CL) Examples are Debentures (NCL) and bank overdrafts (CL) Mr. Barry A-level Accounting Year 12

Capital Investment in the business made by the owner Made up of initial investment plus profits made, less profits withdrawn by the owner in the form of drawings Mr. Barry A-level Accounting Year 12

Drawings Funds withdrawn from the business by the owner for personal use Mr. Barry A-level Accounting Year 12

Activity Overview of capital Started in business with capital of 5000 as a cheque paid into the account Overview of non-current assets Bought office equipment 2500 paying in cheque Overview of expenses Paid rent of office 500 by cheque Overview of income Received commission of 100 by cheque Overview of Owner’s drawings Withdrew 250 from the bank for own use Overview of Loans Received a loan of 1000 from James Henderson Draw up the relevant ledgers for each of these transactions 10 minutes End Mr. Barry A-level Accounting Year 12

A-Level Accounting Year 12
Lesson aims Recording of transactions in accounts in the accounting system Double-entry accounts – how debits and credits work Bank Account – money received and money paid Accounts for income and expenses – some example transactions Mr. Barry A-Level Accounting Year 12

Payment of insurance through the bank involves entries in two accounts – Insurance Account and Bank Account Paid insurance by cheque for £500 Question 3 minutes Prepare the ledger entries for the above example End “DRive on the left and CRash on the right!” Mr. Barry A-level Accounting Year 12

Debits and Credits in double-entry
Top tip Ask yourself is the account increasing or decreasing in value? Mr. Barry A-level Accounting Year 12

Bank account Can you remember, from your knowledge of the cash book, what side will increase/ decrease the value of the bank account? debit Bank Account credit Money in Money out The rule for Bank Accounts that ‘money in = debit’ and ‘money out = credit’ NEVER changes and must not be confused with the way banks talk about debits and credits! (Explored in bank reconciliation statements) Mr. Barry A-level Accounting Year 12

How to write up the double-entry accounts
The ‘T’ shows the structure of the account, but you will need to know how to enter all the transaction details debit credit date details date details Can you remember the headings we use to draw up a cash book? Mr. Barry A-level Accounting Year 12

Paying the insurance – the entry in Bank account
10 January, insurance of £300 paid through the bank Where would this be entered in the bank account below? Bank Account debit money in money out credit date details date details 10 Jan Insurance 300 Mr. Barry A-level Accounting Year 12

Firstly, credit Bank Account: Secondly, debit Insurance Account: Mr. Barry A-level Accounting Year 12

Sample transactions The transactions relate to a shop run by Sam and both involve money being paid into the bank in September 3 September Sam pays into the bank a cheque for ````````````£350 for rent received from a tenant ````````````who has a flat above his shop 5 September Sam pays his sales takings of £5,500 ````````````from the shop into the bank Takings- money received from sales for a sole trader Mr. Barry A-level Accounting Year 12

What type of account is each and what will make the account increase/ decrease in value? Bank Account debit money in money out credit date details date details 3 Sep Rent Received 350 Rent Received Account debit credit date details date details Capital Account 3 Sep Bank 350 Any account with “received” will usually be an income and will be a credit in the ledger! Mr. Barry A-level Accounting Year 12

What type of account is each and what will make the account increase/ decrease in value? Bank Account debit money in money out credit date details date details 5 Sep Sales 5,500 Sales Account debit credit date details date details Capital Account 5 Sep Bank 5,500 Sales will always be a credit entry in the books of account! Mr. Barry A-level Accounting Year 12

Sample transactions 2 8 September Sam buys some stock for his shop ````````````writing out a cheque for £3,500 for ````````````his supplier. These are ‘purchases’ for ````````````the business 10 September Sam pays his electricity bill, writing out ``````````` a cheque for £325 to the power company Question Prepare the ledgers for the above transactions End Mr. Barry A-level Accounting Year 12

Remember to ask yourself where does the account fit in DEADCLIC?
Bank Account debit money in money out credit date details date details 8 Sep Purchases 3,500 Purchases Account debit date details date details Capital Account 8 Sep Bank 3,500 Mr. Barry A-level Accounting Year 12

Remember to ask yourself where does the account fit in DEADCLIC?
Bank Account debit money in money out date details date details 10 Sep Electricity 325 Electricity Account debit credit date details date details Capital Account 10 Sep Bank 325 Mr. Barry A-level Accounting Year 12

Summary of the Bank Account transactions
After these four transactions the Bank Account will look like this: Bank Account debit money in money out credit date details date details 3 Sep Rent Received 350 8 Sep Purchases 3,500 5 Sep Sales 5,500 10 Sep Electricity 325 Please note we use 1 T-account to record all transactions relating to bank, sales, expenses during the period. Mr. Barry A-level Accounting Year 12

The following are the business transactions of Adams’ Associates for the month of November. Draw up the relevant ledgers for each of these transactions 1 Nov Started in business with capital of £1,500 in the bank. 2 Nov Bought goods, £200, paying by cheque. 4 Nov Sold goods, £25, a cheque being received. 6 Nov Bought goods, £90, paying by cheque. 8 Nov Sold goods, £125, a cheque being received. 12 Nov Received a loan of £3,000 into the bank account. 14 Nov Bought goods, £250, paying by cheque. 18 Nov Sold goods, £95, a cheque being received. 22 Nov Bought a delivery van, £2500, paying by cheque. 25 Nov Paid wages, £825, by bank transfer. 30 Nov Sold goods, £540, a cheque being received. 30 Nov Withdrew £320 for personal use from the bank 10 minutes End Mr. Barry A-level Accounting Year 12

Lesson aims You will learn how to: Complete more complex transactions in the associated ledger accounts Acknowledge the importance of the bank account in recording transactions from various ledger accounts Mr. Barry A-level Accounting Year 12

Introducing KWL Mr. Barry A-level Accounting Year 12

Think, Pair, Share Complete the first section of the KWL chart, writing everything you have learned so far Think for two minutes and write them individually Share with the person beside you for three minutes Together, share with the rest of class Mr. Barry A-level Accounting Year 12

Individually 2 minutes End Mr. Barry A-level Accounting Year 12

Get into Pairs now Mr. Barry A-level Accounting Year 12

In Pairs 3 minutes End Mr. Barry A-level Accounting Year 12

The division of the ledger
Until now we have assumed all T-accounts are drawn up and shown together However, this is not the case. There are three ledgers in the books of account Sales Ledger Purchases Ledger General Ledger Mr. Barry A-level Accounting Year 12

General ledger The general ledger includes all of the transactions we have previously seen Can you list some of the accounts we have completed in the previous lessons? 2 minutes Mr. Barry A-level Accounting Year 12

General ledger The general ledger includes all of these types of accounts and should be used to record every transaction except individual credit sales & credit purchases These are entered in the sales and purchases ledgers Mr. Barry A-level Accounting Year 12

General ledger Asset accounts are kept in the general ledger. You can be asked to produce the account. Machinery Asset at Cost Account debit credit date details date details 1 Sep Balance b/d 500 15 Sep Sale (Disposal) 1,200 12 Sep Bank 2000 Mr. Barry A-level Accounting Year 12

Sales ledger The Sales Ledger is your record of individual credit sales, and whether or not you have received the money, and how much you are still owed The amounts included in the Sales Day Book (SDB) are transferred to the sales ledger It is a list of individual debtors or trade receivables What is a trade receivable? Mr. Barry A-level Accounting Year 12

Sales ledger Business’ sells items “on credit” to customers who become debtors (trade receivables) Question Can you guess what two accounts would be created from this transaction? Think about the source document/ daybook! Mr. Barry A-level Accounting Year 12

Sales ledger Example 1 20 Sep Sold goods for £175 on credit to Strensham Stores, with payment to be made in 30 days time. Prepare the ledger accounts from this transaction and what accounts would go into the general ledger and sales ledger? 2 minutes Mr. Barry A-level Accounting Year 12

Sales ledger Strensham Stores (Debtor) Account debit credit date details date details 20 Sep Sales 175 Sales Account (General Ledger) debit credit date details date details Capital Account 20 Sep Strensham Stores 175 Mr. Barry A-level Accounting Year 12

Sales ledger Example 1 25 Sep Received a cheque for £175 from Strensham Stores Prepare the ledger accounts from this transaction and what accounts would go into the general ledger and sales ledger? 2 minutes Mr. Barry A-level Accounting Year 12

Sales ledger Strensham Stores (Debtor) Account debit credit date details date details 20 Sep Sales 175 20 Oct Bank 175 Bank Account debit credit date details date details Capital Account 20 Oct Strensham Stores 175 Mr. Barry A-level Accounting Year 12

Sales ledger A sales ledger will always be titled the name of the customer you have been trading with It will most likely have an opening balance showing much the customer owes you from the last period Note We will explore more detailed examples in later lessons Mr. Barry A-level Accounting Year 12

Sales ledger Sometimes a customer is dissatisfied with a product you sold them and they want to return it This is what’s known as a sale return or return inward This will be entered into the general ledger and sales ledger (in the customer’s account) Mr. Barry A-level Accounting Year 12

Sales ledger Example 2 5 Oct Sold goods, £125, on credit to A Holmes 10 Oct A Holmes returned goods, £25 Can you draw up the T accounts for the sale on the 5 October? End Mr. Barry A-level Accounting Year 12

Sales ledger A Holmes (Debtor) Account debit credit date details date details 5 Oct Sales 125 Sales Account debit credit date details date details Capital Account 5 Oct A Holmes 125 Mr. Barry A-level Accounting Year 12

Sales ledger A Holmes (Debtor) Account debit date details date details 5 Oct Sales 125 10 Oct Sales returns 25 Return inwards Account General Ledger debit date details date details Capital Account 10 Oct A Holmes 125 Sales returns/ returns inwards will always be a debit- opposite to sales account Mr. Barry A-level Accounting Year 12

Purchases ledger The purchase ledger contains the individual accounts of suppliers from whom the business has made purchases on credit The amounts included in the Purchases Day Book (PDB) are transferred to the purchases ledger It is a list of individual Creditors or trade payables Mr. Barry A-level Accounting Year 12

Purchases ledger Businesses purchase items “on credit” from suppliers who become creditors Example 2 18 Sep Bought goods for £250 on credit from Malvern Manufacturing Co, with payment to be made in 30 days time End Mr. Barry A-level Accounting Year 12

Purchases ledger Example 2 18 Sep Bought goods for £250 on credit from Malvern Manufacturing Co, with payment to be made in 30 days time 22 Sep Paid £150 by cheque to Malvern Manufacturing Co 25 Sep Returned unsatisfactory goods, £30 Very similar to a sales ledger except it’s the opposite sides and the return is called returns outwards Mr. Barry A-level Accounting Year 12

The following are the business transactions for Oct 2016 of Junior Gomez who trades as “Caribbean dreams & Co.”. 1 Oct Started in business with capital of £1,000 in the bank 2 Oct Bought goods for £495 on credit from Greenz Ltd 4 Oct Sold goods for £250, a cheque being received 5 Oct Sold goods, £160, cash received 6 Oct Returned goods, £160, to Greenz Ltd 7 Oct Bought goods, £700, on credit from Milliars Goods 10 Oct Sold goods, £990, on credit to Five Seasons 12 Oct Sold goods, £175, a cheque being received 15 Oct Five Seasons returned goods £100 17 Oct Retuned goods £150 to Milliars Goods 18 Oct Paid the amount owing to Greenz Ltd by cheque 20 Oct Sold goods £190, cash received 23 Oct Bought goods, £225, on credit from Greenz Ltd 26 Oct Paid rent in cash, £900 28 Oct Received a cheque from Five seasons for the amount owing Purchased new office computer with cheque, £825 29 Oct Received commission £75, by cheque 30 Oct Drawings £350, by cheque Draw up the relevant ledgers for each of these transactions 15 minutes End Mr. Barry A-level Accounting Year 12

Introduction to ledger accounts

Similar presentations

Presentation on theme: "Introduction to ledger accounts"— Presentation transcript:

Similar presentations

About project

Feedback

Log in

Auth with social network:

Introduction to ledger accounts

Similar presentations

Presentation on theme: "Introduction to ledger accounts"— Presentation transcript:

Similar presentations

About project

Feedback