Accounting Business Reporting for Decision Making

134 Accounting: Business Reporting for Decision Making

ILLUSTRATIVE EXAMPLE 4.6

Journal entry for Advantage Tennis Coaching

The transaction recorded in the journal below represents a contribution of $20 000 cash by the owner

(N Cash) on 1 September 2016. Cash is debited because the debit represents an increase in cash, and

capital is credited because this represents an increase in equity.

Date Name of account Dr Cr

1/9/16 Cash

Capital — N Cash

$20 000

$20 000

The ledger

A ledger is an account that accumulates all the information about changes in specific account balances. It can be

used in place of a journal, or it can be used to record the summarised information from a journal. For example, if

you use special journals to record similar transactions such as cash receipts or cash payments, then you will post

the totals from these journals to the ledger account. There will be a separate ledger account for each item affected

by the transaction, and each account will have a debit side and a credit side. The debit side is the left side and the

credit side is the right side of the ledger account. The advantage of recording in a ledger rather than in a journal

is that it allows us to summarise all the transactions affecting that ledger account (e.g. all the sales for a month).

Chart of accounts

A chart of accounts is a listing of the ledger account titles and their related numbers and/or alpha number,

and is maintained in both a manual or computerised system like MYOB or QuickBooks. A chart of

accounts assists in locating ledger accounts efficiently and identifies whether the entity is a sole trader,

partnership or company. A chart of accounts should be flexible enough to cater for expansions of accounts

as the business grows. As you can see in Advantage Tennis Coaching’s chart of accounts in figure 4.1, each

number has not been assigned, which allows for the insertion of new accounts in the future.

Advantage Tennis Coaching

Chart of accounts

Assets (100–199)

Cash at bank

Accounts receivable

Office furniture

Office equipment

100

110

120

130

Liabilities (200–299)

Accounts payable

Loan

200

210

Equity (300–399)

Capital — N Cash

Drawings — N Cash

300

310

Income (400–499)

Coaching fees 400

Expenses (500–599)

Wages

Website development

Telephone

Rent

Electricity

500

510

520

530

540

FIGU R E 4.1 Example of chart of accounts for Advantage Tennis Coaching