Week 1 Notes - AC201

Accounts are used to record business transactions

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The ledger has a third column to record the running balance in the account. Accounts are used to record business transactions. They are simply a record of all the increases and  decreases in a financial statement; for instance, cash, office supplies, or an account payable (you  borrowed money from someone or another company). 
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A group of accounts is called a ledger. A chart of accounts is simply a listing of the numbers assigned to  the various accounts; for instance, Cash is numbered 101. Assets begin with the number 1, liabilities  number 2, owners equity number 3, revenue accounts are number 4 and expenses number 5.  Companies will have the same categories of accounts but titles and numbers may vary, but they will follow  this structure. The easiest way to remember the purpose of the Trial Balance is for checking to see if the Debits and  Credits in the Ledgers are equal. To create a Trial Balance you simply list the accounts in account number  order 1, 2, 3 etc and place its current balance on a piece of accounting paper. Debits in the first column,  Credits in the second column. If you have entered the numbers right and kept the running balance  correctly when you add the columns on the trial balance they will equal. Now, how did the numbers get to  the Ledger? They got there through the process of ;posting;. Look at the General Journal, there is a small  column between the transaction column and the DR and CR columns. The accountant enters in the  account number for the account being posted in this column. For instance if Cash has an account number  of 101, then 101 will be posted in this column, and the accountant goes to the Cash Ledger and enters the  entry in the appropriate column, DR or CR, just as entered in the Journal-if the entry in the journal was a  DR the entry in the Ledger will be a DR. In the Ledger the accountant places the page number in the little  column for posting, such as J1, meaning General Journal page 1. The accountant does this for every  transaction and entry entered in the Journal. Accountants have to be very careful not to overlook or make  a mistake, for instance, transposition errors, because they will be out of balance.  Don't go for a cup of coffee or answer a phone when posting because if you are gone for a while you may  forget that you posted the account number in the Journal but had not completed placing the entry in the  Ledger. A bad thing about errors is that if you make the same error in the DR column as in the CR column  you are still in balance, therefore, when you prepare the trial balance your DRs and CRs are equal and  you think, hey I've done it right, there is no mistake, but there is. As in everything else, errors can be 
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