Chapter 3 - The General Ledger

Question 1

What are ledger accounts?

Answer 1

Accounting records showing all the transactions that affect a particular item

Question 2

What is the General Ledger?

Answer 2

The collective name for the main group of ledger accounts

Question 3

The ledger is made in a T-form account. There are two columns. What are the columns and what side do they do?

Answer 3

The two columns are Debit Side (on the left) and Credit Side (on the right).

Question 4

What is the double-entry recording in ledger accounts?

Answer 4

1. Every transaction must be recorded in at least two ledger accounts
2. Every transaction must be recorded on the debit side of one ledger account and the credit side of the other.

Question 5

Assets appear on the left side of the Balance sheet. So to record an increase what side should an increase be recorded?

Answer 5

The debit side. The left side.

Inversely all decreases must be recorded on the right side.

Question 6

Liabilities and Owner’s Equity appear on the right of a balance sheet. Therefore what side of a ledger do you write in to show an increase?

Answer 6

The credit side. The right side.

Inversely for all decreases in these two it appears on the debit side. the left side.

Question 7

What is the cross reference?

Answer 7

One of the three parts of a side of the ledger. It is in the middle between date and amount $.
It is the name of the other account affected by a transaction, so that both accounts affected by a particular transaction can be identified. Eg. if I increase the Bank asset, It also increases the OE. Thus I would write capital in the asset debit side ledger and write bank in the cross reference of the OE.

Question 8

What does revenue represent?

Answer 8

An increase in owner’s equity.

Question 9

Since revenue represents an increase in owner’s equity what side will records be written in ledgers?

Answer 9

Increases in revenue are written on the right side. The credit side.

Inversely decreases in revenue are written on the debit side.

Question 10

Since expenses represents a decrease in owner’s equity it would thus affect what side of the ledgers?

Answer 10

Increases would be recorded on the left. The debit side.

Inversely, decreases would be written on the right. The credit side.

Question 11

What side of ledger entries show increase and decrease in

• asset
• liability
• owner’s equity
• revenue
• expense

Answer 11

Asset: Left side increase, Right side decrease
Liabilities: Left side decrease, right side increase
Owner’s Equity: Left side decrease, right side increase
Revenue: Left side decrease, right side increase
Expenses: Left side increase, right side decrease

Question 12

What are the four steps of the recording procedure?

Answer 12

1. Identify the items/accounts affected (always will be at least two)
2. Identify what type of account it is (A/L/OE/R/E)
3. Identify whether they are increasing or decreasing
4. Use the table to identify whether the account should be debited or credited.

Question 13

What is an Analysing chart?

Answer 13

A tool used to identify the steps for recording transactions in the general ledger. It shows another method of displaying the ledgers. it includes date, accounts affected, the type of the account, increase/decrease, debit $, credit $.

Question 14

When ledger accounts are being started after trading for some time what can the cross reference be for the ledgers?

Answer 14

It can be called BALANCE!

This is because it is already pre-existing in the accounts and comes from numerous different transactions.

Question 15

If capital figure not included what equation do you use?

Answer 15

OE=A-L