Edway - ACCA - FA - Chapter 5 - Ledger Accounts and Double Entry

ACCA
Financial Accounting (F3)

(Chapter 5: Ledger accounts and double entry)
Edway Academy
Đào Trường Đăng, ACCA, CPA
0982 762 707
For exams in September 2023, December 2023, March 2024 and June 2024
05.
Ledger accounts and

double entry
1
Chapter Overview
Ledger accounts and double entry
Ledger accounts Dual effect Double entry
Edway.edu.vn Financial Accounting (F3) Ledger accounts and double entry 3
Ledger accounts
Financial reporting process
Source documents
 Quotation;  Sales day book;

 Purchase/ Sales Order; Books of prime entry  Purchase day book;
 GRN; GDN  Sales returns book;
 Invoices; Statements  Purchase returns book;
 Credit note; Debit note;  Cash book;
 Remittance advice;  Petty cash book;
 Receipt  Journal book
Ledger accounts
Sub-ledgers To perform reconciliation

General/ Nominal ledgers
(Subsidiary ledgers) To ensure matching
Trial balance
Financial statements
2
Ledger accounts
Key term
Ledger accounts: Summarize all the individual transactions in the books of prime entry.
Nominal ledger/ An accounting record which summarizes the financial affairs of a
General ledger: business.
Ledger accounts
Assets Liabilities Capital Income Expenses
 Property, plant &  Total trade  Issued capital;  Sale;  Wages and salary;
equipment (PPE); accounts payable;  Undistributed  Financial income;  Rent and local
 Inventories;  Loan and earnings;  Other income taxes;
 Total trade borrowing;  Share premium;  Advertising
accounts  Provision;  Treasury shares; expenses;
receivables;  Accruals  Capital reserves  Bank charges;
 Cash  Motor expenses;
 Telephone
expenses.
Ledger accounts
Payable ledger/
Fixed asset ledger
Purchase ledger
How about
sub-ledger?
Receivable Ledger/
Bank ledger
Sale ledger
Depending on each entity
3
Ledger accounts
Example 1: Format of a ledger account
Ledger account name

DEBIT SIDE CREDIT SIDE
$ $
Property, plant and equipment

Date Narrative Amount ($) Date Narrative Amount ($)
3 Feb 20X3 Purchase of 5,000 5 Mar 20X3 Disposal of 22,000
machine automobile
Ledger accounts
Example 2: Distinguish “Payable/ purchase ledger”, “Payable account” and “Purchase account”
Edway Company Limited has purchased inventories on credit from 3 suppliers: John ($500), Paul ($300), James
($400). Payment discounts granted by John, Paul and James during the period are respectively $50, $20 and 30$.
Source documents
Books of prime entry:

• Purchases day book;
• Purchases returns day book
General/ Nominal ledgers:

Sub-ledgers:
• Purchases account;
• Payable/ purchase ledger To perform reconciliation
• Purchases returns account;
(E.g: Individual vendor To ensure matching
• Total payable account/
account ledger)
Payable control account
4
Ledger accounts
 PURCHASE LEDGER ( A subledger – used to record transactions by Creditors )
John
1 Feb 20X2 Payment 350 12 Jan 20X2 Inventories 500
Discount granted 50
Paul
15 Mar 20X2 Payment 250 16 Jan 20X2 Inventories 300
Discount granted 20
James
10 Mar 20X2 Payment 350 20 Jan 20X2 Inventories 400
Discount granted 40
Ledger accounts
 GENERAL LEDGER (including some related ledger accounts)
Purchase account
31 Jan 20X2 Inventories 1,200
Discount received account

28 Feb 20X2 Payment Discount 50
31 Mar 20X2 Payment Discount 60
Total payable account (Payables control account)

28 Feb 20X2 Payment Discount 50 31 Jan 20X2 Inventories 1,200
28 Feb 20X2 Payment made 350
5
Ledger accounts
Example 3: Distinguish “Receivable/ sale ledger”, “Receivable account” and “Sale account”
Edway Company Limited has sold shoes on credit to 3 customers: Messi ($1,000), Rooney ($800), Ronaldo ($600).
Payment discounts allowed to Messi, Rooney and Ronaldo during the period are respectively $60, $50 and 40$.
Source documents

• Sales day book;
• Sales returns day book

Sub-ledgers:
• Sales account;
• Receivable/ sale ledger To perform reconciliation
• Sales returns account;
(E.g: Individual customer account To ensure matching
• Total receivable account/
ledger)
Receivable control account
Ledger accounts
 SALE LEDGER ( A subledger – used to record transactions by Debtors )
Messi
12 Mar 20X2 Shoes 1,000 1 Apr 20X2 Payment received 800
Discount allowed 60
Rooney
15 Mar 20X2 Shoes 800 5 Apr 20X2 Payment received 800
Discount allowed 50
Ronaldo
10 Mar 20X2 Shoes 600 10 Apr 20X2 Payment received 300
Discount allowed 40
6
Ledger accounts
 GENERAL LEDGER (including some related ledger accounts)
Sale account
31 Mar 20X2 Shoes 2,400
Discount allowed account

30 Apr 20X2 Payment Discount 150
Total receivables account (Receivables control account)

31 Mar 20X2 Sales of shoes 2,400 30 Apr 20X2 Payment received 1,900
Discount allowed 150
Dual effect
ACCOUNTING EQUATION
Capital/
Total assets Liabilities Equity/ Net
assets
Capital/ Equity (Net asset) = Capital introduced + Retained (Undistributed) earnings/ Profit
Or
Capital/ Equity (Net asset) = Capital introduced + ( Earned Profit – Drawings )
Drawings refer to the money withdrawn

Profit/ Loss = Income - Expense from a business by its owners for their
personal use.
7
Dual effect
Dual effect: Every transaction affects two things, which is the base for double entry bookkeeping method.
Example 4: Some examples on transactions and their dual effects
Transactions Dual effects
 Purchase of a machine for production on  Trade payables increase by $5,000.

credit for $5,000  PPE increases by $5,000.
 Capital contribution of $1,000,000 through  Capital increases by $1,000,000

bank account  Cash at bank increases by $1,000,000
 Payment of $2,000 for monthly office rental  Cash decreases by $2,000

fee  Rent expense increases by $2,000
 Trade receivables increase by $1,000.

 Sales of shoes on credit for $1,000
 Sale increases by $1,000.
Double entry bookkeeping (T-accounts)

Key term
Double entry Double entry bookkeeping is the method by which a business records
bookkeeping: financial transactions. An account is maintained for every asset, liability,
income and expense. The basic rule, which must always be observed, is
that every financial transaction gives rise to two accounting entries,
one a debit and the other a credit. Which account is debited and which is
credited depends on the nature of the transaction.
General rules of Double entry bookkeeping
Assets/ Expenses Accounts Liabilities/ Capital/ Income Accounts

Debit Credit Debit Credit
Increase Decrease Decrease Increase
8
Example 5: Cash transactions
(a) A cash sale (ie a receipt) of $250 (b) Payment of a rent bill of $150
(c) Buying some inventories for cash at $150 (d) Buying some machines for cash at $2,000
Source documents

• Cash book;
• Petty cash book

Sub-ledgers: • Cash on hand;
To perform reconciliation
• Receivable/ sale ledger • Cash at bank
To ensure matching
• Payable/ Purchase ledger • Relevant assets, liabilities,
income or expense account.

Transaction 1: (a) A cash sale (ie a receipt) of $250

CASH AT BANK
$ $
Sale account 250
SALE ACCOUNT
$ $
Cash at bank 250
9
Transaction 2: (b) Payment of a rent bill of $550

CASH AT BANK
$ $
Rent account 550
RENT ACCOUNT
$ $
Cash at bank 550

Transaction 3: (c) Buying some inventories for cash at $750

CASH AT BANK
$ $
Purchase account 750
PURCHASES ACCOUNT
$ $
Cash at bank 750
10
Transaction 4: (d) Buying some machines for cash at $2,000

CASH AT BANK
$ $
PPE account 2,000
PPE ACCOUNT
$ $
Cash at bank 2,000

Example 6: Credit transactions and cash is paid to suppliers or by customers for these transactions then
(a) The business sells inventories on credit to Mr. John for $5,000. One month later, Mr. John makes full payment.
(b) The business buys fixed assets (PPE) on credit from a supplier for $10,000. Two weeks later, $7,000 is paid to the supplier.
Transaction 1: (a) The business sells inventories on credit to Mr. John for $5,000
TRADE RECEIVABLES
$ $
Sales account 5,000
SALES
$ $
Trade receivables 5,000
11
Transaction 2: (a) One month later, Mr. John makes full payment.
CASH AT BANK
$ $
Trade receivables 5,000
TRADE RECEIVABLES
$ $
Cash at bank 5,000

Transaction 3: (b) The business buys fixed assets (PPE) on credit from a supplier for $10,000
TRADE PAYABLES
$ $
PPE account 10,000
PROPERTY, PLANT AND EQUIPMENT (PPE)

$ $
Trade payables 10,000
12
Transaction 4: (b) Two weeks later, $7,000 is paid to the supplier.

CASH AT BANK
$ $
Trade payables 7,000
TRADE PAYABLES
$ $
Cash at bank 7,000
Balancing off the ledger accounts (T-accounts)

Step Description Illustration
Step 1: Add the debit and credit sides CASH AT BANK

separately. $ $
Sales 1 800 Inventory 300
Sales 2 1,000 Rent 500
Step 2: Fill in the higher of the two CASH AT BANK

totals on both sides. $ $
Sales 2 1,000 Rent 500
1,800
13
Step 3: Balance the two sides by “filling CASH AT BANK

the gap” with the number required $ $
to make both sides balance. This Sales 1 800 Inventory 300
is called the balance carried
down (c/d). Sales 2 1,000 Rent 500
Balance c/d 1,000
1,800 1,800
Step 4: Complete the double entry by CASH AT BANK

putting the balance brought $ $
down (b/d) on the opposite sides
below the total. This will be the
starting figure for the next set of Sales 2 1,000 Rent 500
transactions. Balance c/d 1,000
1,800 1,800
Balance b/d 1,000

Step 5: If we are at the year/period end, Telephone

the statement of profit or loss $ $
account balances do not get Cash at bank (Q1) 500 To statement of P/L 2,950
carried into the next year/ period
and, therefore, we will simply write Cash at bank (Q2) 800
“to statement of profit or loss” Cash at bank (Q3) 650
instead of balance c/d.
Cash at bank (Q4) 1,000
2,950 2,950
14
The journal
Key term
Journal: The journal keeps a record of unusual movement between accounts. It is

used to record any double entries made which do not arise from the other
books of prime entry, ie non-routine transactions. For example, journal
entries are made when errors are discovered and need to be corrected.
For further interpretation
• The journal is a book of prime entry and is used for those transactions that do not fit into the other
books of prime entry, eg an error that needs to be corrected, or a purchase of a non-current asset.
• The format of a journal entry is: Date; Account to be debited ($X); Account to be credited ($X);
Narrative to explain the transaction.
• The narrative explanation is compulsory for audit and control to indicate the purpose and
authority of every transaction which is not first recorded in a book of prime entry.
Day book analysis

Entries in the day books (books of prime entry) are totalled and analyzed before posting to the nominal ledger.
SALES DAY BOOK

Date Invoice number Customer Total amount Coca Pepsi
$ $ $
2.1.20X2 235 Messi 500 500
236 Ronaldo 400 400
237 Rooney 700 300 400
TOTAL 1,600 800 800
 In theory, the entry for these transactions in the ledger account is as follows:
DEBIT Trade accounts receivable $1,600
CREDIT Sales account $1,600
 In practice, a ‘sale of Coca’ account and a ‘sale of Pepsi’ account might be opened up. Then postings are:
DEBIT Trade accounts receivables $1,600
CREDIT Sale of Coca account $800
Sale of Pepsi account $800
15
Chapter Round-up
Ledger accounts and double entry
Ledger accounts Dual effect Double entry
The nominal ledger  Every transaction affects two  TOTAL DEBITS = TOAL
 Each item in the statement of things, which is the base for CREDITS
financial position or statement of double entry bookkeeping  A debit entry increases assets,
method. expenses and drawings and a
profit or loss will have an
credit entry increases liabilities,
“account”;
income and capital.
 Ledger accounts are often
shown as ‘T’ accounts;
 At the end of the year/period,
each ledger account is balanced
off and the totals taken to trial
balance.
Practice
Question 1: John set up a business selling keep-fit equipment, trading under the name of Johny Shop. He
put $12,000 of his own money into a business bank account (transaction 1) and, in his first period of trading
to 31 March 20X2, the following transactions occurred:
Transaction No. Transaction description Amount ($)
No. 1 Put his own money into a business bank account 12,000
No. 2 Paid rent of shop for the period 5,500
No. 3 Purchased inventories on credit 6,000
No. 4 Took out a bank loan 2,000
No. 5 Purchased shop fittings (for cash) 3,000
Let’s practice!
No. 6 Sales of equipment – cash 11,000

No. 7 Sales of equipment on credit 3,000
No. 8 Payments to suppliers 6,000
No. 9 Payments received from customers 3,000
No. 10 Paid interest on the loan 500
No. 11 Other expenses (all paid in cash) 2,900
No. 12 Drawings 1,000
Required: Post transactions No. 1 – No. 12 to the ledger accounts and balance off the ledger accounts with
the following accounts: Cash at bank; Capital; Bank loan; Purchases; Trade payables; Non-current assets;
Sales; Trade receivables; Bank loan interest; Other expenses; Drawings.
16
Practice
Question 2: Which one of the following can the accounting equation can be rewritten as?
o Assets + profit – drawings – liabilities = closing capital
o Assets – liabilities – drawings = opening capital + profit
o Assets – liabilities – opening capital + drawings = profit
o Assets – profit – drawings = closing capital - liabilities
Question 3: A trader’s net profit for the year may be computed by using which of the following
formulae?
Let’s practice!
o Opening capital + drawings – capital introduced – closing capital
o Closing capital + drawings – capital introduced – opening capital
o Opening capital – drawings + capital introduced – closing capital
o Opening capital – drawings – capital introduced – closing capital
Practice
Question 4: The profit earned by a business in 20X2 was $72,500. The proprietor injected new capital
of $8,000 during the year and withdrew goods for their private use which had cost
$2,200.
If net assets at the beginning of 20X2 were $101,700, what were the closing net assets?
o $35,000
o $39,400
o $168,400
o $180,000
Let’s practice!
Question 5: The net assets of Altese, a trader, at 1 January 20X2 amounted to $128,000. During the
year to 31 December 20X2 Altese introduced a further $50,000 of capital and made
drawings of $48,000. At 31 December 20X2 Altese’s net assets totalled $184,000.
What is Altese’s total profit or loss for the year ended 31 December 20X2?
o $54,000 profit
o $54,000 loss
o $42,000 loss
o $58,000 profit
17
Practice
Question 6: Jones Co has the following transactions:
(a) Payment of $400 to J Bloggs for a cash purchase;
(b) Payment of $250 to J Doe in respect of an invoice for goods purchased last month.
What are the correct ledger entries to record these transactions?
o DEBIT Cash $650

CREDIT Purchases $650
o DEBIT Purchases $650
CREDIT Cash $650
DEBIT Trade Payables $250
Let’s practice!
CREDIT Cash $650
o DEBIT Cash $650
CREDIT Trade Payables $250
CREDIT Purchases $400
Practice
Question 7: Giant Co’s motor vehicles at cost account at 30 June 20X6 is as follows:
MOTOR VEHICLES - COST
$ $
Balance b/d 150,500 Disposal 85,000
Additions 120,950 Balance c/d 186,450
271,450 271,450
What opening balance should be included in the following period’s trial balance for motor
vehicles – cost at 1 July 20X6?
Let’s practice!
o $271,450 DEBIT
o $271,450 CREDIT
o $186,450 CREDIT
o $186,450 DEBIT
18
Practice
Question 8: Billing Co’s trade payables account at 30 September 20X1 is as follows:
TRADE PAYABLES ACCOUNT
$ $
Cash at bank 21,600 Balance b/d 14,000
Balance c/d 11,900 Purchases 19,500
33,500 33,500
What was the balance for trade payables in the trial balance at 1 October 20X0?
o $14,000 DEBIT
o $14,000 CREDIT
Let’s practice!
o $11,900 DEBIT
o $11,900 CREDIT
Practice
Question 9: Smith Co has the following transactions:
(a) Purchase of goods on credit from T Rader: $450
(b) Return of goods purchased on credit last month to T Rouble: $700
What are the correct ledger entries to record these transactions?

DEBIT Purchase Returns $700
CREDIT Cash $450
CREDIT Trade Payables $700
Let’s practice!
CREDIT Purchase Returns $650

CREDIT Purchase Returns $700
o DEBIT Purchase Returns $700
DEBIT Purchases $450
CREDIT Trade Payables $1,150
19
Practice
Question 10: You are given the following information:
Trade receivables at 1 January 20X3: $10,000
Trade receivables at 31 December 20X3: $9,000
Total receipts during 20X3 (including cash sales of $5,000): $85,000
What are sales on credit during 20X3?
o $81,000
o $86,000
o $79,000
Let’s practice!
o $84,000
Practice
Question 11: A business sells $100 worth of goods to a customer, the customer pays $50 in cash
immediately and will pay the remaining $50 in 30 days’ time.
What is the double entry to record the purchase in the customer’s accounting records?
o DEBIT cash $50, CREDIT payables $50, CREDIT purchases %50
o DEBIT payables $50, DEBIT cash $50, CREDIT purchases $100
o DEBIT purchases $100, CREDIT payables $50, CREDIT cash $50
o DEBIT purchases $100, CREDIT cash $100
Question 12: The following totals appear in the day books for March 20X8.
Let’s practice!
Sales day book: $40,000

Purchases day book: $20,000
Returns inwards day book: $2,000
Returns outward day book: $4,000
Opening and closing inventories are both $3,000. What is the gross profit for Mar 20X8?
o $22,000
o $24,000
o $20,000
o $18,000
20
Thank You
41
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ACCA

Financial Accounting (F3)

0982 762 707

Ledger accounts and

Ledger accounts and double entry

Ledger accounts Dual effect Double entry

Edway.edu.vn Financial Accounting (F3) Ledger accounts and double entry 3

 Quotation;  Sales day book;

Sub-ledgers To perform reconciliation

Edway.edu.vn Financial Accounting (F3) Ledger accounts and double entry 4

Assets Liabilities Capital Income Expenses

Edway.edu.vn Financial Accounting (F3) Ledger accounts and double entry 5

Depending on each entity

Edway.edu.vn Financial Accounting (F3) Ledger accounts and double entry 6

Ledger account name

Property, plant and equipment

Edway.edu.vn Financial Accounting (F3) Ledger accounts and double entry 7

Books of prime entry:

General/ Nominal ledgers:

Edway.edu.vn Financial Accounting (F3) Ledger accounts and double entry 8

 PURCHASE LEDGER ( A subledger – used to record transactions by Creditors )

Edway.edu.vn Financial Accounting (F3) Ledger accounts and double entry 9

 GENERAL LEDGER (including some related ledger accounts)

Discount received account

Total payable account (Payables control account)

Edway.edu.vn Financial Accounting (F3) Ledger accounts and double entry 10

Books of prime entry:

General/ Nominal ledgers:

Edway.edu.vn Financial Accounting (F3) Ledger accounts and double entry 11

 SALE LEDGER ( A subledger – used to record transactions by Debtors )

Edway.edu.vn Financial Accounting (F3) Ledger accounts and double entry 12

 GENERAL LEDGER (including some related ledger accounts)

Discount allowed account

Total receivables account (Receivables control account)

Edway.edu.vn Financial Accounting (F3) Ledger accounts and double entry 13

Capital/ Equity (Net asset) = Capital introduced + ( Earned Profit – Drawings )

Drawings refer to the money withdrawn

Edway.edu.vn Financial Accounting (F3) Ledger accounts and double entry 14

Example 4: Some examples on transactions and their dual effects

Transactions Dual effects

 Purchase of a machine for production on  Trade payables increase by $5,000.

 Capital contribution of $1,000,000 through  Capital increases by $1,000,000

 Payment of $2,000 for monthly office rental  Cash decreases by $2,000

 Trade receivables increase by $1,000.

Edway.edu.vn Financial Accounting (F3) Ledger accounts and double entry 15

Double entry bookkeeping (T-accounts)

General rules of Double entry bookkeeping

Assets/ Expenses Accounts Liabilities/ Capital/ Income Accounts

Increase Decrease Decrease Increase

Edway.edu.vn Financial Accounting (F3) Ledger accounts and double entry 16

Books of prime entry:

General/ Nominal ledgers:

Edway.edu.vn Financial Accounting (F3) Ledger accounts and double entry 17

Double entry bookkeeping (T-accounts)

Transaction 1: (a) A cash sale (ie a receipt) of $250

Edway.edu.vn Financial Accounting (F3) Ledger accounts and double entry 18

Transaction 2: (b) Payment of a rent bill of $550

Edway.edu.vn Financial Accounting (F3) Ledger accounts and double entry 19

Double entry bookkeeping (T-accounts)

Transaction 3: (c) Buying some inventories for cash at $750

Edway.edu.vn Financial Accounting (F3) Ledger accounts and double entry 20

Transaction 4: (d) Buying some machines for cash at $2,000

Edway.edu.vn Financial Accounting (F3) Ledger accounts and double entry 21