Book 1 - Chapter 25

Multiple Choice
1.	c.	It should show the ledger account number to which the debit or credit was posted.
2.	b
3.	b
4.	c
5.	a
6.	d.	The reference column in the ledger will contain the page number of the journal to show where the information came from, and the reference column in the journal will contain the ledger account number to show where the information was posted.
7.	c.	Balances are only found in ledger accounts. The journal shows changes caused by transactions.

Discussion Questions and Brief Exercises for Learning Goals 23–25

1.	A ledger is the book (or computer file) that contains the individual ledger accounts. The ledger that we are studying here is called the “general ledger” because it contains all the accounts. There are also specialized ledgers that contain only selected accounts (sometimes called “sub-ledgers”). Ledger information is organized by account.
2.	A journal is where transaction information is first recorded in an accounting system. For that reason, a journal is sometimes called the “book of original entry.” The transaction information is recorded chronologically (by date of occurrence).
3.	The essential difference is that a journal arranges information by transaction, and a ledger arranges the same information by account. The advantage of a journal is that any entire transaction can be easily located and examined. The advantage of a ledger is that any account can be easily located and examined. Each account in the ledger shows the history of all the increases and decreases in the account and the balance of the account.
4.	A debit is a left-side entry, and a credit is a right-side entry (in a journal or an account). A debit balance is left-side balance in an account. A credit balance is a right-side balance in an account.
5.	No, the rules for increasing and decreasing accounts are independent from the use of the words “ debit” and “credit.” “Debit” and “credit” is just terminology to refer to left and right.
6.	Not correct. “Double-entry accounting” means an accounting system based on an equation, so recording a transaction requires that at least two items must change to keep the equation in balance.
7.	They are both wrong. The words debit and credit only mean left and right. They have no other meaning. This is a common mistake.
8.	Julia—relax, you are making this too complicated! Debit and credit only mean left and right, they do not mean increase or decrease, or anything else. However, it a common mistake for beginning students to confuse the words debit and credit with the rules for increasing and decreasing the accounts. The rules for increasing and decreasing accounts are completely separate from using the words debit and credit. Learn the rules first, then you can start using “debit” and “credit” to describe the “left” and “right” changes in the accounts.

Learning Goal 25

SOLUTIONS

Learning Goal 25: Use a Basic Accounting System

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