Accounting Notes.docx

Definition of General Ledger Account A general ledger account is an account or record used to sort, store and summarize a company's transactions. These accounts are arranged in the general ledger (and in the chart of accounts) with the balance sheet accounts appearing first followed by the income statement accounts. Examples of General Ledger Accounts Some of the more common balance sheet accounts and how they are further arranged in the general ledger include:  asset accounts such as Cash, Accounts Receivable, Inventory, Investments, Land, and Equipment  liability accounts including Notes Payable, Accounts Payable, Accrued Expenses Payable, and Customer Deposits  stockholders' equity accounts such as Common Stock, Retained Earnings, Treasury Stock, and Accumulated Other Comprehensive Income Some of the general ledger income statement accounts and how they are arranged include:   

operating revenue accounts such as Sales and Service Fee Revenues operating expense accounts including Salaries Expense, Rent Expense, and Advertising Expense nonoperating or other income accounts such as Gain on Sale of Assets, Interest Expense, and Loss on Disposal of Assets General Ledger Control Accounts Some general ledger accounts can become summary records and will be referred to as control accounts. In that situation all of the detail that supports the summary amounts in one of the control accounts will be available in a subsidiary ledger. Examples of General Ledger Control Accounts A common example of a general ledger account that can become a control account is Accounts Receivable. The summary amounts are found in the Accounts Receivable control account and the details for each customer's credit activity will be contained in the Accounts Receivable subsidiary ledger. Other general ledger accounts that may become control accounts include Inventory, Equipment, and Accounts Payable. Definition of Suspense Account A suspense account is a general ledger account in which amounts are temporarily recorded. The suspense account is used because the appropriate general ledger account could not be determined at the time that the transaction was recorded. As soon as possible, the amount(s) in the suspense account should be moved to the proper account(s). Example of Using a Suspense Account An accountant was instructed to record a significant number of journal entries written by the controller of a large company. Unfortunately, there was one amount that did not have an account designated. In order to complete the assignment by the deadline, the accountant recorded the "mystery" amount in the general ledger Suspense account. When the controller is available, the accountant will get clarification and will move the amount from the Suspense account to the appropriate account.

efinition of Drawing Account

A sole proprietorship will have a drawing account in which the owner's withdrawals or draws of cash or other assets are recorded. The amounts of the owner's draws are recorded with a debit to the drawing account and a credit to cash or other asset. At the end of the accounting year, the drawing account is closed by transferring the debit balance to the owner's capital account.

The Drawing Account is a Capital Account

To answer your question, the drawing account is a capital account. It's debit balance will reduce the owner's capital account balance and the owner's equity. The drawing account's purpose is to report separately the owner's draws during each accounting year. Since the capital account and owner's equity accounts are expected to have credit balances, the drawing account (having a debit balance) is considered to be a contra account. In addition, the drawing account is a temporary account since its balance is closed to the capital account at the end of each accounting year. Example of the Drawing Account

Let's assume that L. Ott begins a sole proprietorship with a cash investment of $3,000. The journal entry will debit Cash for $3,000 and will credit L. Ott, Capital for $3,000. Later, the L. Ott withdraws $500 from the business for her personal use. The journal entry for this transaction will debit L. Ott, Drawing for $500 and will credit Cash for $500. After this transaction, the business will have assets of $2,500 and will have owner's equity of $2,500.