Ledger accounting Flashcards
ledger accounting
a technique which allows us to keep a ‘running total’ of all of our transactions in separate ledger accounts
what does ledger accounting avoid the need for?
balance sheets and P&L accounts after every transaction
where are ledger accounts kept?
in the nominal ledger/general ledger (collects all ledger account together here)
Rules of ledger accounting
- A ledger or ‘T account’ has two sides - DR and CR
- For every DR entry in a ledger account, there is a CR entry in another ledger account
- Need to learn which entries are debits and which are credits
Which sides are the DR and CR on, on a T account?
DR is on the left side and CR is on the right side
When debits and credits increase, what is acronym to remember and what does it stand for?
DEAD CLIC
DR Expenses Assets Drawings
CR Liabilities Income Capital
6 steps for working out closing balance in ledger accounts:
- rule off ledger accounts (draw line under)
- add up debit side
- add up credit side
- put larger of totals on both sides
- on smaller side of T account, add a ‘balance c/f’ figure to make up total
- enter the same balancing figure from smaller side to the larger side, under the total as a ‘balance b/f’
If double entry is done correctly, what should happen?
Trial balance when summarised will balance on both DR and CR sides
Closing stock equation
opening stock + purchases - sales = closing stock
what does the trading P&L account show and so, what does this mean?
performance for a given period of time (annual usually) and only times relating to this period so should not show items from previous or future periods
at the end of the period, balances in income and expense accounts are…
transferred to the trading profit and loss ledger accounts
what does balance sheet ledger show?
position of a business at a point in time
