1

Basics of Accounting

Lecture no. 9

dr Wojciech Hasik

[e-mail]

Vertical and horizontal division of
ledger accounts

For purpose of more transparent and precise
accounting the recording system is being adopted
into specific needs of the entity by

Dividing ledger accounts in the following directions

horizontal

vertical

2

The horizontal division of l. account

it consists of extracting from acc. divided a
group of accounts that are functioning in
exactly the same way as divided account

the group of analytical accounts is being
created

analytical accounts can be used next to or
instead of synthetic account

Horisontal division of l. acc.: short term

investment

Ob)

+

Shares

-

Short term investment

Ob)

+

Bonds

-

Ob)

+

Cash

-

Ob)

+

-

3

The horizontal division of l. account

• it consists of extracting from acc. divided a

group of accounts that are functioning in
exactly the same way as divided account

• the group of analytical accounts is being

created

• analytical accounts can be used next to or

instead of synthetic account

Horizontal division of l. account

Before we close the synthetic l. account

–

we have to perform a reconciliation of the
analytical accounts balances with synthetic acc.
balance

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Vertical division of l. acc. – Tangible Fixed

Assets

OB)

acquire

Tangible fixed assets

disposal

Tangible fixed assets at carrying value

Ob. at historical cost)

acquire of t.f.a.

reversing of depreciation write off for

disposed asset

reversing of impairment write off

accumulated depreciation write off

disposal of t.f.a.

creating an impairment write off

depreciation
write off

Accumulated deprec.

reversing of

write off

creating an
write off

Impairment write off

reversing of

the write off

The contra account

the result of vertical division of the main ledger
account

5

The contra asset account

It is used for the purpose of registering the changes and
states of different types of assets book value adjustments
resulting from:

•

prudence:

•

accumulated depreciation and amortization

•

impairment write offs

•

reversing of write offs

•

using standard costs and prices to carry assets (in
values different to real ones):

•

standard prices (merchandise, materials)

•

standard costs (finished and semi finished goods)

•

gross or net selling price (merchandise)

Why do we need it?

Problem 1:

we purchase the same supplies from different
suppliers at different prices

how to measure each supply?

Problem 2:

we are manufacturing in an ongoing system

how to measure each portion of finished goods?

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contra asset account example:

„deviation from standard price of materials”

3 deliveries of the same type

1.

@ 90

2.

@ 105

3.

@ 110

total value of deliveries: 305

treatment?

contra asset account example:

„deviation from standard price of materials”

Using standard price (or cost or selling price):

simplification allowed in PAA and other jurisdictions
(including IFRS)

deviations (differences) between standard price (cost)
and real price (cost) are booked on separate account

at the end of financial period total accumulated
deviations are allocated to:

–

inventory left (asset)

–

inventory disposed (cost)

technically through adjustment (+ or -) of cost (inventory

disposal) by appropriate portion of deviation

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Bookkeeping documents

every entry into accounting books must result
from appropriate, fairly prepared, formally
proper, and correct document – that is
bookkeeping document

bookkeeping document is a written
presentation of real accounting event
(transaction)

Bookkeeping errors corrections

errors in documents

errors in books:

–

entering the adjustment entry: contra entry (storno)

negative contra entry (red storno)

(regular, black) contra entry – positive entry:

–

full contra entry (using double entry adjustment)

–

part contra entry (to adjust only one side entry)