Double Entry

General Ledger

The collective name for the main group of ledger accounts

Increases in ____ are recorded on the debit side

- Assets - Expenses

Double entry accounting

A system for recording transactions that records 'two fold effect' of each transaction on the accounting equation by using debit and credit rules in ledger accounts.

Ledger Accounts

Accounting records showing all the transactions that affect a particular item. There are separate ledgers for each item in firm's record.

Disadvantages of Double entry

- Less efficient than single entry accounting because every transaction is recorded twice; hence it is time consuming - Extra recording may result in higher administration costs

Increases in ____ are recorded on the credit side

- Liabilities - Owner's equity - Revenue

Types of ledgers and what they record

Bank ledger account records all movement of cash into and out of firm's bank account Stock Ledger account records all movements of stock into and out of business Creditor's Ledger account records all increases and decreases in what firm owes to suppliers

Advantages of Double entry

- Recognises each account that a single transaction affects - Ensures accurate figures are recorded and no errors are made as all figures can be cross-checked with the opposite side's entries - Ensures accurate calculation of profit/loss - Preparation of financial reports can be done directly from ledger accounts

Advantage of Trial Balance

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Errors shown in Trial Balance

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Trial Balance

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Double entry rules in LEDGER ACCOUNTS

1. Every transaction must be recorded in at least 2 ledgers 2. Every transaction must be recorded on the debit side of one ledger and credit side of another

Rules of double entry accounting

1. Every transaction will affect at least 2 items in the accounting equation 2. After recording these changes, the accounting equation must still balance

Errors not shown in Trial Balance

1. transposition/recording errors 2. transaction not recorded at all (omission) 3. transaction posted to wrong account 4. reversed the debits and credits

Distinguish between footing and balancing.

♥ 'Footing' usually done in pencil, is an informal process of calculating the balance of a ledger account so the trial balance can be checked for accuracy. ♥ Once the ledger is considered accurate, asset and equity accounts (excluding drawings) are formally balanced so they not only determine the balance of the end of the reporting period, they are set up for the start of the next reporting period.