Ledger accounts

What is a ledger account?

It is too time consuming to write up the accounting equation each time that the business undertakes a transaction so instead the two effects of each transaction are recorded in ledger accounts.

This enables us to summarise the business performance and position as and when required, not for every transaction.

How is a T account used?

There is a ‘T’ account for each caption in the statement of financial position and the statement of profit or loss. Each ‘T’ account shows increases and decreases to that account.

How is a T account split up?

The left hand side is called the DEBIT side

The right hand side is called the CREDIT side.

We post entries to the Debit or Credit side depending on whether they are increases or decreases to the account.

What does a debit entry represent?

• An increase in an asset

• A decrease in a liability

• AN expense item

What does a debit entry represent?

• An increase in a liability

• A decrease in an asset

• An item of income

How can you remember an increase in transactions?

DEAD CLIC

Debit= expenses, assets, drawings

Credit= liabilities, income, capital

(for decreases, the opposite applies)

What is an example of what one of the accounts should look like on a general ledger?