1 RECORDING TRANSACTION TO GENERAL LEDGER To simplify of recording transaction in a company needs a basic procedure To Process of recording transaction.

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RECORDING TRANSACTION TO GENERAL LEDGER

•To simplify of recording transaction in a company needs a basic procedure

• To Process of recording transaction needs some accounts and general ledger

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A. DEFINITION of ACCOUNTS, GENERAL LEDGER, and KINDS of ACCOUNTS

• An account is simply a class of information in an accounting system. It involves accounts of assets, liabilities, equities, income, and expenses

• Examples: Cash, Supplies, Accounts Payable, Capital, Services Revenue, Salaries Expense

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General ledger is just a book containing all the company’s accounts

A manual (handwritten) bookkeeping system generally uses ledger to classify business transactions by account

Each page of the ledger usually represents one account

General Ledger

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Usefulness of an Account

• A group of accounts for a business entity is called a ledger

• A list of the accounts in the ledger is called a chart of accounts

• A chart of accounts is designed to meet the information needed for company’s managers and other users of their financial statements

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Account Classification

Account in General Ledger

Real Account

Nominal Account

Assets Accounts

Liabilities Accounts

Equities Accounts

Income Accounts

Expenses Accounts

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Characteristics of an Account

• The simplest form of an account has three parts:

Each account has a title which is the name of the item recorded in the account

Each account has a space to record increases in the amount of the item

Each account has a space to record decreases in the amount of the item

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Form of AccountsForm of AccountsA simplest T – Form of A simplest T – Form of

AccountsAccounts

Name of Account

(Left side/ debit)(Right side/

Credit)

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Name of account is in list headingThe date column is used to record the

transaction time occurredThe description column is used to record

a description related to the transactionF-column is filled journal page when

posting to general ledger is done

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A Completely A Completely T – Form of AccountsT – Form of Accounts

DateDescription

RefAmount

Date Description Ref Amount

Debit Side Credit Side

Number:Number:Name of Account

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Cash

DateDescription

Ref Amount DateDescription

Ref Amount

2008

Oct

1 Investment 300,000 2008

Oct

4 Vehicle Maintenance expense

Rent xpenses8,000

17,000

2 Bank Loan 150,000 Salaries exp

Miscellaneous exp

16,000

1,000

6 Receivable Collections

100,000 7 Pays bank loan

Interest exp

5,000

600

Debit Balance 482,400

8 Prive 20,000

Transaction Recording in Cash

550,000

67,600

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The Rules of Recording in Account

DEBIT CREDITIncrease in Assets AccountsDecrease in Liabilities AccountsDecrease in owner’s Equity

Decrease in Assets AccountsIncrease in Liabilities Accounts Increase in owner’s Equity

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The Rules of Debit and Credit on Assets

• To INCREASE an ASSET – type account, enter the amount on the DEBIT side

• To DECREASE an ASSET – type account, enter the amount on the CREDIT side

All assets accounts should have DEBIT BALANCE at the end of the period because increases can be expected to exceed decreases

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To INCREASE a LIABILITY and an EQUITY – type account, enter the amount on the CREDIT side

To DECREASE a LIABILITY and an EQUITY – type account, enter the amount on the DEBIT side

All liabilities and equity accounts should have CREDIT BALANCES at the end of the period,

because increases can be expected to exceed decreases

The Rules of Debit and Credit on Liabilities and Equity

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Types of an Equity Accounts

• Owner’s Equity Account

• Owner’s Withdrawal Account

• Revenue Account

• Expenses Account

Revenue and Expenses Accounts are called Nominal Account/ Income Statement Accounts

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The Rules of Debit and Credit in Income and Expenses

Debit for

Increasing (+)

Credit for

Decreasing (-)

Expenses

Debit for

Decreasing (-)

Credit for

Increasing (+)

Income

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The Rules of Debit and Credit in Real Account on Balance Sheet

Debit (+)

Credit (-)

AssetsDebit

(-)Credit

(+)

Liabilities

Normal Balance

Normal Balance

Debit (-)

Credit (+)

Owner’s Equity

Normal Balance

Balance Sheet

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The Rules of Debit and Credit to Real Account in Accounting Equation

Debit (+)

Credit (-)

AssetsDebi

t (-)

Credit (+)

Liabilities

Debit (-)

Credit (+)

Owner’s Equity

= +

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ASSET ACCOUNTS = LIABILITY ACCOUNTS + CAPITAL ACCOUNTS

Increases are recorded on the left or debit size

Decreases are recorded on the right or credit side

Decreases are recorded on the left or debit side

Increases are recorded on the right side or credit side

Decreases are recorded on the left or debit side

Increases are recorded on the right side or credit side

The Rules of Debit and Credit to Real Account in Accounting Equation

DEBIT balances for ASSETS

CREDIT balances for EQUITIES

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The Rules of Debit and Credit to Nominal Account in Equities

Account

Equities

Debit

(+)

Credit (-)

Debit Credit

Debit (-)

Credit (+)

Expenses

Income

Normal Balance

Normal Balance

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The Rules of Debit and Credit and Normal Balance in

Each Accounts Group

Account Increasing

Decreasing

Balance

AssetsLiabilitiesOwner’s EquityIncomeExpenses

DebitCreditCreditCreditDebit

Credit Debit Debit DebitCredit

DebitCreditCreditCreditDebit

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Analyzing the Impact of Business Transaction to the Accounts

•The Analysis of transaction is a critical step in accounting cycle

This step will have an impact to the following steps

• It is used to understand the impact of transaction to the accounts in accounting equation

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• Each business transaction will cause at least two accounts and the sum of debit must be equal to the sum of credit

• This equality of debit and credit for each transaction is built into the accounting equation: Assets = Liabilities + Owner’s Equity

• It is also because of this double equality that the system is known as double-entry accounting

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Recording transaction in AccountExamples:

Transaction 1:

January, 02, 2008, Kartika established a Transportation and Travel Company named “Widya, Co”. She invested Cash Rp. 1,000,000,000 and Office Supplies Rp. 15,000,000.

Those transactions will be recorded on the accounts as follows:

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Transaction AnalysisTransaction 1 will cause:

a.Asset account (Cash and Office Supllies) and Equity (Kartika’s Capital) increase

b.Debited : Cash Rp. 1,000,000,000

Debited : Office Supplies Rp. 15,000,000

Credited: Kartika’s Capital Rp. 1,015,000,000

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Recording Transaction on Accounts

Cash

1. Rp. 1,000,000,000

Office Supplies

1. Rp. 15,000,000

Kartika’s Capital

1. Rp. 1,015,000,000

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Transaction 2:January, 22, 2008, “Widya, Co” purchased building at cost Rp. 700,000,000. This building is used to operational of office activities

Transaction Analysis

a.This transaction will change one asset to another asset (Cash Building)

b.Debited : Building Rp. 700,000,000

Credited : Cash Rp. 700,000,000

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Recording Transaction on Accounts

Cash

Building

2. Rp. 700,000,000

2. Rp.700,000,000