O Level Principles of Accounts (7110)

Unit 2: The Ledger and Trial Balance

Recommended Prior Knowledge
No prior knowledge is needed other than students personal experiences as consumers and possibly workers for and observers of organisations.

Context
This unit covers fundamental aspects of bookkeeping. It can be studied on its own or in conjunction with Unit 1. Later units are based on knowledge gained in this unit
so it is important to study this unit early in a course of study. Students may find it useful to refer to a glossary of accounting terms as they study.

Outline
This unit focuses on double entry bookkeeping which underlies all bookkeeping and accounting in examinations. It also covers reconciling the cash book and the bank
statement.


AO Learning outcomes Suggested Teaching activities Learning resources
1.1 Candidates should be able to:

explain the difference between
bookkeeping and accounting in providing
information for monitoring progress and
decision making
Some examples of bookkeeping as the routine day-to-day record-
keeping as compared with final accounts, management accounts
and other aspects of accounting should help students appreciate
the breadth of the subject. It is important to stress that accuracy
of bookkeeping is very important because this provides the basis
on which decisions are made.



state the benefits of ICT (Information and
Communications Technology) in
bookkeeping and accounting:
accuracy
speed of processing information
performing reconciliations
ease and capacity of information
storage
security

Students do not need to have access to or be familiar with a
computer. However, seeing how a computer deals with numerous
bookkeeping transactions would clarify the topic. A visit to a local
business is one option. Or groups of students could be asked to
identify benefits for an organisation of using computers.

http://www.voluntaryarts.org/uploaded/
map2795.pdf#search=%22computerise
d%20accounts%20example%22

1.2 Candidates should be able to:

explain the meaning of assets, liabilities
Quizzes can be used to check understanding of terminology and
examples

http://en.wikipedia.org/wiki/Double-
entry_bookkeeping_system

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AO Learning outcomes Suggested Teaching activities Learning resources
and owners capital

explain and apply the accounting equation

outline the double-entry system of
bookkeeping
Ensure students understand the implications of double entry. This
can be shown by indicating how a transaction affects the assets
and liabilities on a balance sheet.

Students need to be clear about the accounting equation (Assets
=Capital +Liabilities) and its variations.

(NB Ensure students are aware of UK
terminology debtors, creditors,
although it will be useful for further
studies if they appreciate that
international terminology such as
accounts receivable will soon be
adopted see syllabus for 2009)

process accounting data using the double
entry system
Relate the books of original entry to the ledger. Emphasise
double-entry is used in the ledger.
http://accounting10.tripod.com/Slides2.
1.ppt

http://accounting10.tripod.com/content.
htm

explain the sub-division of the ledger into
the sales ledger, the purchases ledger,
and the general ledger
It helps students understand by showing and testing them with
several examples of sales on credit and purchases on credit,
taking the transactions through each stage. Contrast these with
cash sales and cash purchases.
http://panoptic.csustan.edu/2110/03/sld
012.htm


post the ledger entries from the books of
prime entry

distinguish between, and account for, cash
and trade discounts
Following above explanations, students should practice
transactions to clarify understanding of posting from the books of
prime entry, including dealing with discounts.
http://www.staffs.ac.uk/schools/busines
s/bsadmin/staff/s5/accsys/wseven.htm
#t

http://www.staffs.ac.uk/schools/busines
s/bsadmin/staff/s5/accsys/weight.htm#t

1.5 Candidates should be able to:

explain and process transactions involving
bank current accounts, bank deposit
accounts, bank overdrafts, bank loans and
other loans
Explain the importance of banks to business including financing in
terms of overdrafts and loans and ensure students understand
terminology like bank charges, standing orders, direct debits and
so on which they will meet in business transactions through the
bank.

http://accounting10.tripod.com/content.
htm


draw up a reconciliation of the cash book
with the bank statement in respect of the
following:
unpresented cheques
bank charges
Explain how businesses regularly check the accuracy of their
accounting and that of the bank by bank reconciliations. Illustrate
and practice. Emphasise the importance of clear and detailed
presentation and accuracy.

Past question papers available from
CIE, e.g.

Specimen Paper 2 Q2

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AO Learning outcomes Suggested Teaching activities Learning resources
bank interest paid and received
direct debits
standing orders
credit transfers
dividends
correction of errors
uncredited deposits
Some texts show the bank reconciliation statement beginning
with the adjusted cash book balance. Others start with the bank
statement balance. Either is acceptable although the most logical,
having just updated the cash book, is the adjusted cash book
balance. It is helpful to students to be consistent in approach as it
helps them remember.

Students find overdrafts difficult to deal with. Practice will assist.

Returning to ledger accounts after bank reconciliation provides
students opportunity to think about the former topic. Test
understanding with examples (such as cash book bank accounts
used for bank reconciliation) checking understanding of the
various transactions.

http://www.bized.ac.uk/stafsup/options/
accounting/work03.htm

Students should be given ample practice preparing and checking
ledger accounts. Ensure they routinely balance accounts
correctly.

http://accounting10.tripod.com/content.
htm

1.7 Candidates should be able to:

prepare ledger accounts using the T
account format
post transactions to the ledger accounts
balance the ledger accounts as required,
make transfers to the final accounts
interpret ledger accounts prepared in T
account format and their balances
explain and interpret ledger accounts
prepared using the running balance format

Candidates are not required to explain or use
folio columns.
Ensure students understand running balance accounts although
they will not be expected to prepare accounts in this format. This
aspect of ledger accounts can be linked with computerised
bookkeeping

http://assets.cambridge.org/052189/34
61/sample/0521893461ws.pdf

(pages 16 and 17)

Past question papers available from
CIE, e.g.

Nov 2003 Paper 1 Q7, 8

1.8 Candidates should be able to:

recognise that a trial balance is a
statement of ledger balances on a
particular date
Illustrate how ledger accounts prepared can be combined in a
trial balance. It is good practice for students to be given a list of
ledger account balances and to have to prepare the trial balance
reinforcing that debit entries are expenses or assets and credit
entries primarily comprise income, liabilities and capital.
http://accounting10.tripod.com/Slides1
1.1.ppt

http://www.bized.ac.uk/stafsup/options/
accounting/work04.htm

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AO Learning outcomes Suggested Teaching activities Learning resources
extract a trial balance
outline its uses and limitations
identify and explain those errors
which do not affect the trial
balance - omission, commission,
principle, compensating, original
entry, and reversals
Students should appreciate that the trial balance is a check on
arithmetical accuracy. Running through the errors, using
examples where possible, will help them appreciate the
limitations.

Past question papers available from
CIE, e.g.

Nov 2003 Paper 1 Q9,10
Nov 2005 Paper 1 Q12


2.3 Candidates should be able to:

make journal entries supporting the
correction of errors

It is useful to illustrate how the journal would be used to show
corrections in the accounts. Include the narratives in these journal
illustrations to avoid students falling into the common
misconception of using, say, error of commission as a journal
narrative.
http://www.bized.ac.uk/stafsup/options/
accounting/mod2_w_suspense.htm


open and post entries to a suspense
account where necessary
Emphasise that suspense accounts are temporary and follow
double entry principles.

prepare a statement of revised profit

prepare revised balance sheet entries

Teachers may wish to return to this topic after they have covered
final accounts and balance sheets. That approach serves as
useful ongoing revision of this earlier part of the syllabus

Alternatively, students can be taken through the implications of
various errors such as fixed assets being included in the accounts
as expenses. The full double entry and journal corrections should
be explained and practiced and each taken forward to look at the
effect on final accounts and balance sheets.
Past question papers available from
CIE, e.g.

Nov 2003 Paper 2 Q2
J un 2005 Paper 1 Q13


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