1. Chapter 4 – The Simple Ledger
BAF3M Accounting
Chapter 4 – The Simple Ledger

2. 4.1 Ledger Accounts First off, some key distinctions:
An “Account” is a page designed to record the changes for an individual item
A “Ledger” is a group or file of accounts
“Heath Ledger” is a late actor best known for playing The Joker in The Dark Knight

3. 4.1 Ledger Accounts There are many ways to create a ledger
In “real world” would be computerized
In “class” we will use paper to learn the accounting theory
Each item (account) on the B/S has its own page in the ledger (p. 89)
Use T-Accounts for this…

4. 4.1 Ledger Accounts T – accounts Called so because they look like a T
leftTright
Account name

5. 4.1 Ledger Accounts
It’s key to understand what side of the ledger the beginning balance is on
ASSETS  LEFT
LIABILITIES + OE  RIGHT

6. 4.1 Ledger Accounts
To Do
1) Copy the T account relationship on page 90.
Do Exercises 1, 2
We’ll do 3 together
Do Exercise 4

7. 4.2 Debit and Credit Theory
Debit (DR)  LEFT SIDE
Credit (CR)  RIGHT SIDE
Asset accounts have DEBIT values
Liab & OE accounts have CREDIT values

8. 4.2 Debit and Credit Theory
Rules of Debit and Credit
For each type of account, record increases on its beginning value side and decrease on the other side
EX. ASSETS  increases – left -- debit
 decreases – right -- credit

9. 4.2 Debit and Credit Theory
Types of Accounts
Beginning Value Side
Increases
Decreases
ASSET accounts
LEFT
DEBIT
CREDIT
LIABILITY & OWNER’S EQUITY accounts
RIGHT

10. 4.2 Debit and Credit Theory
Memorize this:
ASSETS = LIABILITIES + OWNER’S EQUITY
DR CR DR CR DR CR
Follow along with scenario on pgs

11. 4.2 Debit and Credit Theory
TO DO:
4.2 Questions #1 – 6, 9 – 11; pg 102
4.2 Exercises 1 – 4 Pg 102-4

12. 4.3 Account Balances and Terminology
Calculating the Balance of an account
2 steps
Step 1: Add the two sides separately (your totals are called ‘pin totals’ or ‘pencil footings’)
Step 2: Subtract the smaller total from the larger total, write the result beneath the larger number and circle it
See Example Figure 4.6 p. 94

13. 4.3 Account Balances and Terminology
Interpreting the Balance of an Account
Exceptional Account Balances
The Bank Account
Buying & Selling on Credit
Read each section (p.94) and make your own notes

14. WHY DO WE DO A TRIAL BALANCE?
Periodically it is necessary to check the accuracy of the ledger (your T-accounts)
To do this we use a form called a TRIAL BALANCE

15. 4.4 Trial Balance WHAT IS A TRIAL BALANCE?
TRIAL BALANCE - is simply the listing of the account balances in a ledger
it is used to see if the dollar value of the accounts with debit balances is equal to the dollar value of the accounts with credit balances

16. 4.4 Trial Balance KEY TERMS
IN BALANCE – if the debits equal the credits
OUT OF BALANCE – if the debits don’t equal the credits

17. STEPS TO CREATE A TRIAL BALANCE
Include the heading (who, what, when)
List all the accounts and their balances.
Place the debit balances in a debit column and the credit balances in a credit column.
Add up the 2 columns.
See if the 2 column totals are the same.

18. Trial Balance Example

20. If the 2 columns balance does that mean I did it right?
4.4 Trial Balance
If the 2 columns balance does that mean I did it right? NO
Sometimes the errors made were incorrect entries that just happened to be balanced .. This takes some skill to detect and solve