Chapter 5 Summary - Ledger Accounts and Double Entry

Ledger Accounts

• Found within the general ledger. The general ledger is also known as the nominal ledger.
• Every item in the statement of financial position or statement of profit or loss has a ledger account.
• Ledger accounts are often shown as T-accounts, which have debit and credit sides.
• At the end of the year or period, each ledger account is balanced off, and the total is taken to the trial balance.

T-Accounts

• Debit (left side) and Credit (right side).
• At the end of the year, all entries are totaled.
• The biggest side of the T-account is totaled up.
• A balancing figure is added to the smaller side.
• That balancing figure is used for the trial balance.

Double Entry

• Every transaction has two sides.
• Total debits always equal total credits.
• In a computerized system, imbalances prevent transaction posting.
• Imbalances can be automatically put to a suspense account.

Debit and Credit Rules

• Debit increases: assets, expenses, and drawings (DEAL).
• $Debit = Expense + Asset + Drawings$
• Credit increases: liabilities, income, and capital (CLIC).
• $Credit = Liabilities + Income + Capital$
• If any of those accounts decrease, they swap over (debit becomes credit, and credit becomes debit).

Mnemonic

• Debit, Expense, Asset, Drawings (DEAL) increases with debit entries.
• Credit, Liabilities, Income, Capital (CLIC) increases with credit entries.
• Keep a note of DEAL CLIC to assist with postings.