Chapter 7
Necessary steps to keep an accounting system in balance
-Calculate the balance -Find any errors that may have occurred -Use general rules and guidelines to narrow down where and why the mistake was made -Correct the mistake
Posting shows the final impact on an account, which in a ledger is sometimes called a BOOK OF FINAL ENTRY
-Posting intervals are determined by the size of the business, and whether the accounting system is computerized or manual -The posting process always remains the same -The process is always performed from left to right
Ledger account forms
-The forms are defined by the number of columns into which a dollar amount goes -Debit and credit amounts are posted from journal entries to the first two amount colums -The new account balance is entered in one of the last two amount columns -The type of account determines which balance columns
Accounts used by a business are kept on desperate pages or cards in a book or file called a LEDGER. It is important for a number of reasons:
-This creates a record of the impact of business transactions on each account used by a business -It also helps managers easily find the current balance of a specific account
You have just completed a trial balance and the columns are not equal. List the steps that you would use to find the error.
1) Check the addition in each column 2) Find the difference between the amounts in the Debit and Credit columns. If the differences is 10, 100, etc., you probably have made an addition error 3) If the difference found in Step 2 is divisible by 9, you have probably made a slide or transposition error 4) Check to see whether any of the general ledger accounts have a balance equal to the difference found in Step 2 5) Check to see whether any of the general ledger accounts have a balance equal to one-half of the difference. This would indicate that you may have moved a debit balance o the credit side of the trial balance or vice versa 6) Check the accuracy of the general ledger accounts by recalculating the balances 7) Check the individual pages from the general journal to the general ledger to make sure you have correctly posted the amounts and posted debits as debits and credits as credits
Six steps required for posting journal entries to a ledger:
1) Enter the date of the journal entry in the Date column 2) The Description column is left blank, it can be used to write in the source document number 3) Enter journal letter and page number in Post. Ref, column 4) Enter the debit amount in the Debit column 5) Compute the new account balance 6) Enter the account number in the general journal Post. Ref. column 7) Repeat Steps 1-6 for the credit part of the journal entry
Trial balance
A list of all the general ledger account names and balances; it is prepared to prove the ledger
Proving the ledger
Adding all debit and all credit balances of ledger accounts, and then comparing the two totals to see whether they are equal -Sum of debits=sum of credits->proving the ledger
Correcting entry
An entry made to correct an error in a journal entry discovered after posting -Post the entry in the ledger the same as any other entry -Use the words correcting entry in the description column
Transposition error
Error that occurs when two digits within an amount are accidentally reversed, or transposed
General ledger
Provides up to date balances for each account, including accounts payable and receivable -In a computerized system, electronic files are still referred to as a ledger, or the ledger accounts -Managers use ledgers to obtain summarized information
Posting
The process of transferring information from the journal to individual general ledger accounts