accounting equtaion and journal ledger trial balance
Answers
A business may engage in thousands of transactions during a year. Can you imagine preparing a transaction analysis, like we did in the previous unit, for all of those transactions? It would take a lot of time and the spreadsheet would be large! There has to be a better way to classify and summarize the data in these transactions to create useful information.
Explanation:
A journal is a chronological (arranged in order of time) record of business transactions. A journal entry is the recording of a business transaction in the journal. A journal entry shows all the effects of a business transaction as expressed in debit(s) and credit(s) and may include an explanation of the transaction. A transaction is entered in a journal before it is entered in ledger accounts. Because each transaction is initially recorded in a journal rather than directly in the ledger, a journal is called a book of original entry.
A ledger (general ledger) is the complete collection of all the accounts and transactions of a company. The ledger may be in loose-leaf form, in a bound volume, or in computer memory. The chart of accounts is a listing of the titles and numbers of all the accounts in the ledger. The chart of accounts can be compared to a table of contents. The groups of accounts usually appear in this order: assets, liabilities, equity, dividends, revenues, and expenses. Think of the chart of accounts as a table of contents of a textbook. It provides direction as to what exactly will be found in the financial statement preparation.
Individual accounts are in order within the ledger. Each account typically has an identification number and a title to help locate accounts when recording data. For example, a company might number asset accounts, 100-199; liability accounts, 200-299; equity accounts, 300-399; revenue accounts, 400-499; and expense accounts, 500-599. We use this numbering system in this text. The uniform chart of accounts used in the first 11 chapters appears in a separate file at the end of the text. You should print that file and keep it handy for working certain problems and exercises. Companies may use other numbering systems. For instance, sometimes a company numbers its accounts in sequence starting with 1, 2, and so on. The important idea is that companies use some numbering system.
A trial balance is a listing of all accounts (in this order: asset, liability, equity, revenue, expense) with the ending account balance. It is called a trial balance because the information on the form must balance. We will illustrate this later in the chapter.
The Accounting equation and journal ledger trial balance
• The accounting equation is measured to be the establishment of the double-entry accounting system.
• In short, a ledger is an account wise summary of all financial transactions, while a trial balance is the debit and credit balance of these ledger accounts.
• Conventionally a ledger was arranged in a physical book with a separate page for each account and a trial balance was resulting from these accounts.