Lesson 1 General Ledger and Trial Balance.pptx

General Ledger (GL)
The General Ledger is a comprehensive record of all the financial transactions of a business, categorized into accounts such as assets, liabilities, equity, revenues, and expenses.

Key Features:

Structure: Divided into individual accounts (e.g., Cash, Accounts Payable).
Entries: Every journal entry is posted here with corresponding debit and credit amounts.
Purpose: Tracks the balances of all accounts to monitor financial performance and position.
Trial Balance
The Trial Balance is a report generated at the end of an accounting period that lists all accounts and their balances from the General Ledger. It ensures that total debits equal total credits, confirming the books are balanced.

Key Features:

Structure: Two columns—Debit and Credit.
Purpose: Used to prepare financial statements (Income Statement, Balance Sheet).
Limitations: It doesn’t catch errors like transactions omitted or misclassified.

1. The general ledger and the unadjusted trial balance

2. Posting to the ledger

3. Journalizing the Transactions Transactions are recorded initially in a journal . Journals are called books of original entry precisely. Because transactions are originally recorded in them before being posted to the ledger. Business transactions are recorded chronologically. Each journal entry should contain the date; the account title; and the amount to be debited, the account and amount to be credited, and the corresponding explanation for each.

4. DEBIT DR/ dr CREDIT CR/ cr Asset + - Liabilities - + Capital - + Drawings + - Revenues / Income - + Expenses + - Rules of debit and credit

5. Example: Payment of Accounts Payable

6. Example: Receipt of Cash Sales

7. Example: Payment of Salaries

8. Example: Initial Capital

9. Example: Additional Investment

10. Example: Withdrawal from Capital

11. Posting to the Ledger The process of transferring recorded transactions from the journal to the ledger is called posting . The ledger shows in one place all the changes (increases or decreases) for a particular account.

12. Posting to the Ledger All entries from the journal are posted to the various accounts in the ledger. Therefore, the final balance of each account can be determined immediately. This is the reason why ledgers are called books of final entry . T account is the simplest form of ledger. It is normally being used in analyzing accounts instead of the actual ledger.

13. Posting to the Ledger Sample of a T – account Name of Account Debit Credit Date Description Amount Date Desrciption Amount

14. Posting to the Ledger First, know what is the chart of accounts. What Is a Chart of Accounts (COA)? A chart of accounts (COA) is an index of all the  financial accounts  in the  ledger  of a company. In short, it is an organizational tool that provides a digestible breakdown of all the financial  transactions  that a company conducted during a specific  accounting period , broken down into subcategories.

15. Posting to the Ledger First, know what is the chart of accounts. What Is a Chart of Accounts (COA)? It is used to organize finances and give interested parties, such as investors and shareholders, a clearer insight into a company’s financial health.

16. Posting to the Ledger First, know what is the chart of accounts. What Is a Chart of Accounts (COA)? To make it easier for readers to locate specific accounts, each chart of accounts typically contains a name, brief description, and an identification code.

17. Posting to the Ledger First, know what is the chart of accounts. What Is a Chart of Accounts (COA)? The list of each account a company owns is typically shown in the order the accounts appear in its financial statements. That means that  balance sheet  accounts, assets, liabilities, and  shareholders' equity  are listed first, followed by accounts in the  income statement —revenues and expenses.

18. Charts of Accounts Assets Current Assets 101 Cash 102 Accounts Receivable 103 Notes Receivable 104 Unused Office Supplies 105 Prepaid Advertising 106 Rental Receivable

19. Charts of Accounts Assets Non-Current Assets 110 Tools 111 Furniture and Fixtures 112 Office Equipment 113 Repair Equipment

20. Charts of Accounts Liabilities Current Liabilities 201 Accounts Payable 202 Notes Payable 203 Light and Water Payable 204 Interest Payable 205 Unearned Income

21. Charts of Accounts Liabilities Non-Current Liabilities 210 Loans Payable 211 Mortgage Payable

22. Charts of Accounts Owner’s Equity 301 Mr. A Capital 302 Mr. A Withdrawals 303 Income and Expense Summary

23. Charts of Accounts Income/Revenue 401 Service Income 402 Rental Income

24. Charts of Accounts Expenses 501 Salaries Expense 502 Rental Expense 503 Advertising Expense 504 Light and Water Expense 505 Transportation Expense 506 Communication Expense 507 Taxes and License Expense 508 Advertising Expense

25. General Journal Page 1 Date Account Titles and Explanation P. R. Debit Credit 2019 Jul-01 Cash 101 P30,000 Pamilya , Capital 301 P30,000 Initial Investment General Ledger Account Title: Cash Account No. 101 Date Explanation F Debit Date Explanation F Credit 2019 Jul-01 Initial Investment GJ-1 30,000

26. Preparation of trial balance

27. Preparation of Unadjusted Trial Balance When all ending balances of the accounts in the general ledger are summarized, the result is what we called the trial balance . A company prepares a trial balance periodically, usually at the end of every reporting period.

28. Preparation of Unadjusted Trial Balance It is prepared to prove the quality of debit and credit and to detect any mathematical errors that have occurred in the double-entry accounting system.

29. Preparation of Unadjusted Trial Balance If the total debits equal the total credits, the trial balance is considered balanced. However, it does not guarantee the accuracy of the ledgers and does not mean that there are no errors in a company’s accounting system. Some errors cannot be detected from the trial balance even if the total debits and total credits are equal. These errors include the list on the next slide.

30. Preparation of Unadjusted Trial Balance Incomplete processing of transactions (e.g., a transaction was journalized but not posted to the ledger) Recording or posting a transaction twice Misposting of accounts (e.g., a debit to salaries is debited to accounts receivable instead of cash) Erroneous recording of transactions (e.g., cash sales is debited to accounts receivable instead of cash) Failure to record a transaction

31. Preparation of Unadjusted Trial Balance In addition, if the total debit balance is not equal to the total credit balance, any of the following errors might have been committed: Error in addition Posting to the wrong side (e.g., a debit ending balance in the ledger is copied to the credit side of the trial balance) Transposition error (e.g., the order of the digits are interchanged such as when P690.00 is copied as P960.00) Transplacement error (e.g., misplacement of decimal place such as when P69,000.00 is copied as P6,900.00)

32. Preparation of Unadjusted Trial Balance Preparation of Unadjusted Trial Balance In the preparation of trial balance, the following rules must be observed; There should be a report heading that consists of the name of the business, title of the report (i.e., Trial Balance), and date of the report Account titles should be arranged in the following order – Assets, Liabilities, Owner’s Equity, Income, and Expense The peso sign is placed only in the first debit amount, first credit amount, and in total; and The total figure at the end of the balance must be double ruled (double underlined).

33. Trial Balance As of January 31, 2020       Account Titles Debit Credit       Cash 30,000.00   Accounts Receivable 60,000.00   Delivery Equipment 500,000.00   Machinery Equipment 150,000.00   Accounts Payable   35,000.00 Notes Payable   50,000.00 RRR Capital   220,000.00 Service Income   787,000.00 Salaries and Wages 110,000.00   Fuel & Oil 150,000.00   Rent Expense 60,000.00   Light and Water 20,000.00   Communication Expense 12,000.00   Totals 1,092,000.00 1,092,000.00

34. Practice

35. Assets 101 Cash 102 Accounts Receivable 103 Notes Receivable 104 Office Supplies 111 Furniture and Fixtures 112 Equipment Liabilities 201 Accounts Payable 202 Notes Payable 203 Unearned Income Equity 301 Capital 302 Withdrawals Income/Revenue 401 Service Income 402 Rental Income Expenses 501 Salaries Expense 502 Rental Expense 503 Advertising Expense 504 Light and Water Expense 505 Transportation Expense 506 Communication Expense 507 Taxes and License Expense 508 Advertising Expense Charts of Accounts

36. Practice example (Journal, Ledger, Trial Balance) Transactions July 1 The Owner invested his own money, P500,000 July 2 Bought tables and chairs for the company, P12,500 July 3 Receive payment for rendering service, P17,000 Rendered service but the customer haven't paid yet, P18,000 Customer paid through promissory note, P20,000 July 6 Received the loan applied from the bank amounting P150,000 July 9 Received the payment of the customer on account, P18,000 Received the payment of the promissory note, P20,000

37. Practice example (Journal, Ledger, Trial Balance) Transactions July 15 Bought equipment for the business on account, P30,000 July 16 Paid taxes, P23,000 July 20 Paid the equipment bought on account, P30,000 July 21 Paid the loan from the bank, P60,000 Bought and air conditioner, P7,500 July 27 Paid for the use of light and water, P5,000