BAF3M%20Accounting

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BAF3M Accounting

• Chapter 4 The Simple Ledger

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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

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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

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4.1 Ledger Accounts

• T accounts
• Called so because they look like a T
• leftTright

Account name
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4.1 Ledger Accounts

• Its key to understand what side of the ledger
  the beginning balance is on
• ASSETS ? LEFT
• LIABILITIES OE ? RIGHT

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4.1 Ledger Accounts

• To Do
• 1) Copy the T account relationship on page 90.
• Do Exercises 1, 2
• Well do 3 together
• Do Exercise 4

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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

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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

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4.2 Debit and Credit Theory
Types of Accounts Beginning Value Side Increases Decreases
ASSET accounts LEFT DEBIT CREDIT
LIABILITY OWNERS EQUITY accounts RIGHT CREDIT DEBIT
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4.2 Debit and Credit Theory

• Memorize this
• ASSETS LIABILITIES
  OWNERS EQUITY
• - - -
  
• DR CR DR CR DR CR

Follow along with scenario on pgs 94 - 100
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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

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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

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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

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WHY DO WE DO A TRIAL BALANCE?
4.4 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

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WHAT IS A TRIAL BALANCE?
4.4 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

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KEY TERMS
4.4 Trial Balance

• IN BALANCE if the debits equal the credits
• OUT OF BALANCE if the debits dont equal the
  credits

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STEPS TO CREATE A TRIAL BALANCE

1. Include the heading (who, what, when)
2. List all the accounts and their balances.
3. Place the debit balances in a debit column and
   the credit balances in a credit column.
4. Add up the 2 columns.
5. See if the 2 column totals are the same.

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Trial Balance Example
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If the 2 columns balance does that mean I did it
right?
4.4 Trial Balance

• NO

Sometimes the errors made were incorrect entries
that just happened to be balanced .. This takes
some skill to detect and solve