Ppt ch 03

Chapter 3
The Ledger
Prepared by
Brooke C. W. Barker
Copyright © 2010 by Nelson Education Limited

Chapter 3: The Ledger
Chapter Objectives
After completing this chapter, you will be able to:
 assign account numbers according to a chart of accounts
 post transactions from the General Journal to the General
Ledger accounts
 prepare a trial balance of the General Ledger
Copyright © 2010 by Nelson
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What is the General Ledger?
The General Ledger is a book or file that holds all the
individual ledger accounts in one place.
What is a ledger account?
A ledger account shows the increases and decreases
(the debit and credit entries) of each asset, liability,
owner’s equity, revenue, and expense account.
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Why have a journal and a
ledger?
Journal
 Record business
transactions on a daily
basis
 Activity for one account, for
example, cash is scattered
 Hard to say at end of month
how much cash is left in
account
Ledger
 Holds all the individual
ledger accounts in one
place
 Easy to see increases and
decreases in each account
 Can tell how many sales
per month, how much cash
left easily

Below is the ledger account for a customer, Devon
Lauryl Company. All ledger accounts look basically
the same.
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Each ledger account has:
 A name
 An account number
 The chart of accounts will be discussed later.
 A sheet number
 This is the page number of the account. Page 1, 2, 3, etc.
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...and each ledger account has a column for:
 Date
 Memo (sometimes called Explanation)
 Folio (the page number of the journal the entry came
from)
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...as well as columns for:
 Debit entries
 Credit entries
 Balance (the ongoing value of the account)
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Other columns not mentioned previously will be
discussed at another time. These include:
 Discount Date
 Dr/Cr
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Chapter 3: Chart of Accounts
A chart of accounts is a list of account categories and the account
numbers assigned to them.
For example:
Assets 100–199
Liabilities 200–299
Owner’s Equity 300–399
Revenues 400–499
Expenses 500–599
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On this chart, asset accounts are assigned a number
between 100 and 199.
Liability accounts are assigned numbers between
200 and 299, etc.
Assets 100–199
Liabilities 200–299
Owner’s Equity 300–399
Revenues 400–499
Expenses 500–599
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The range of numbers assigned to a category will
depend on the needs of the business. Numbers are
CHEAP, use more digits to allow flexibility
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Here's an example of a very basic chart of accounts:
Assets:
Cash 1010
Furniture 1100
Equipment 1200
Liabilities:
Accounts Payable 2010
Owner's Equity:
Capital 3010
Revenues:
Sales 4010
Expenses:
Rent Expense 5110
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Pg 40 – Exercise 1 answers
1xx Cash (or Bank)
1xx Accounts Receivable
1xx Drafting Supplies Prepaid
1xx Insurance Prepaid
1xx Service Equipment
1xx Office Furniture & Equipment
1xx Land
1xx Building

Pg 40 – Exercise 1 Answers
2xx Accounts Payable
2xx Sales Tax Payable
2xx Bank Loan Payable
2xx Mortgage Payable

 3xxx
Capital A. Fraser

4xx Sales
4xx Interest Revenue
4xx Rental Revenue

5xx Purchases
5xx Advertising Expense
5xx Delivery Expense
5xx Donations
5xx Interest Expense
5xx Rent Expense
5xx Salaries Expense
5xx Telephone Expense

Chapter 3: Posting
Posting is the process of transferring information from the journal to
the ledger accounts.
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Chapter 3: Posting
 General Journal entries should be posted in the
order they appear on the journal page.
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Chapter 3: Posting Copyright © 2010 by Nelson
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1
2
3
4

Chapter 3: Posting
There are 8 basic steps in the posting process:
Step 1: Locate the ledger account for the first entry to
be posted.
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Chapter 3: Posting
Step 2: Enter the date of the transaction in the Date
column of the ledger account.
Use the same date as the entry in the journal.
The month and year are usually recorded only for
the first entry in each account, or when starting a
new ledger page, or when starting a new month
or year.
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Chapter 3: Posting
Step 3: Enter a suitable explanation of the
transaction in the Memo column.
This might include an invoice number, a cheque
number, or a special notation.
Some transactions do not require explanations.
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investment

Chapter 3: Posting
Step 4: Enter the debit amount in the Debit column.
Write the amount clearly.
No dollar signs, commas, or decimal points.
Use '00' or '--' for no cents.
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Chapter 3: Posting
Step 5: Calculate the balance of the account and
enter it in the Balance column.
The balance is the running value of the
account.
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Chapter 3: Posting
Step 6: Mark the status of the account balance as
debit (Dr) or credit (Cr).
To simplify this, we simply mark all Asset and
Expense accounts DR in our template, and all
Liability, Equity and Revenue accounts CR – as this
is their normal balance.
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Chapter 3: Posting
Step 7: Enter the folios in the journal and the ledger
account.
The folio in the journal shows the ledger
account number to which the entry was
posted.
The folio in the ledger account shows the
journal page number that the entry came
from.
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Chapter 3: Posting
Step 8: Repeat the process for each entry in the
journal.
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Pg 44 Practice Exercise 2
 Enter information into the General Journal
 Post the journal entries to the Ledger accounts as explained.

P 44 - Exercise 2 – Chart of
Accounts
 101 Bank
 102 Office Furniture and Equipment
 110 A/R Michael Bensen
 201 Kran’s Computer Co.
 301 Capital, Henri Bruin
 401 Commission Revenue
 501 Rent Expense
 503 Office Supplies Expense
 505 Telephone Expense

Chapter 3: Trial Balance
A Trial Balance is a list of all the accounts in the ledger and their
balances.
It proves that the ledger is in balance.
It proves that Debits = Credits.
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A Trial Balance has a 3-line heading.
The heading identifies who, what and when.
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Accounts are listed in order by account number.
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The balance of each ledger account is entered in the
Debit column or the Credit column.
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The totals must be equal.
Debits = Credits
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P 44 – EX 2 – Create a Trial
Balance

Chapter 3: Finding Errors in a Trial Balance
If the Trial Balance does not balance, it might be because of one or
more of the following:
A debit amount was entered into the credit column in a
ledger account, or vice versa.
An error was made in calculating one or more account
balances.
Amounts were copied incorrectly from a ledger account
to the trial balance or from the journal to a ledger
account.
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Chapter 3: Finding Errors in a Trial Balance
There are some errors that a Trial Balance will not reveal:
Posting to the wrong ledger account.
Leaving out an entire transaction during posting.
Compensating errors (an error on the debit side that
offsets an error of equal value on the credit side).
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Chapter 3: Finding Errors
Here are 7 steps for locating almost any error you could encounter in
your books:
1. Double-check the addition of the Trial Balance.
The error could be just an adding mistake.
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2. Compare the amounts on the trial balance with
those in the ledger accounts.
The error could be an amount copied incorrectly.
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3. Calculate the difference between the debit and
credit totals on the Trial Balance to see how much
you are out of balance.
Perhaps an account balance was forgotten or
a journal entry was missed during posting.
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4. Using the difference calculated in step 3, divide it
by 2 and look for that amount.
An amount on the wrong side creates an imbalance
of double the amount.
So, if the difference between the totals is $70, divide by 2
to get a value of $35. Look for a possible incorrect
balance or journal entry of $35.
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5. Divide the difference by 9. If the difference is
divisible by 9, the error is usually a transposition of
figures, such as $96 entered as $69, or $57.20
entered as $52.70.
This kind of error is very common. Take extra care
when entering and copying amounts.
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6. Double-check the calculation of the balance in
each ledger account.
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7. Thoroughly check every posting from the journal to
the ledger accounts to ensure that each one has
been posted accurately.
Unfortunately, if you have not found the error by this
point,
it is necessary to double-check everything.
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P 49 - Exercise 6
 Please hand in corrected trial balance at the end of class.
 Work in groups if you prefer

End of Chapter 3
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