Posting Journal Entries to General Ledger Accounts Chapter 7 In chapter 6, you learned to analyze business transactions & enter those transactions in the general journal. In this chapter, you will learn to post journal entries to the general ledger & to prepare a trial balance (steps 4 & 5 in accounting cycle) 9/19/2018

Posting Process of transferring information from the journal to individual general ledger accounts An up-to-date ledger allows the accountant to give management information such as sales, income, & expenses General ledger- permanent record organized by account number What is the benefit or organizing the general ledger by classification & account number? 4. Helps to find accounts easily. 9/19/2018

Creates a record of the impact of business transactions on each account used by a business After posting, a business owner or manager can easily find the current balance of a specific account Ledger account forms- described by the number of their “amount columns.” Fill out three blank ledger account forms. Open a general ledger account for cash (101), Delivery revenue (401), & Rent Expense (510). Label the account title and number on top lines. 9/19/2018

The type of account determines which balance column to use Debit & credit amounts are posted from journal entries to the first two amount columns The new account balance is entered in one of the last two amount columns The type of account determines which balance column to use 9/19/2018

Accounts in the Ledger Before journal entries can be posted, a general ledger account is opened for each account listed on the chart of accounts Two steps are required (opening an account) Write the account name at the top of the ledger account form. Write the account number on the ledger account form. 9/19/2018

Starting a New Page for an Existing Account When a ledger account page is filled, continue posting on the next page. Six steps required to “open” a new page: Write the account name at the top of the ledger account form Write the account number on the ledger account form Enter the complete date in the date column Write the word Balance in the Description column. Place a check mark in the Posting Reference column to show the amount entered on this line is not being posted from a journal Enter the balance in the appropriate Balance column. Usually asset, expense, & owner’s withdrawals accounts have debit balances. Liability, owner’s capital, and revenue accounts have credit balances. 9/19/2018

Usefulness of Journals & Ledgers In what order should ledger account forms be placed? Look at figure 7.4 on page 166. How can you tell that this amount was not posted from a journal? Managers can refer to the journal entry to learn the balance of important accounts like Accounts Receivable and Accounts Payable. Managers use ledgers to obtain summarized information. Numerical Check mark in Post. Ref. column, word Balance and the fact that the amount is entered directly in the balance column. 9/19/2018

The Posting Process (7.2) Posting is the process of transferring information from the general journal to individual general ledger accounts. Journal entries are posted to the general ledger daily Accounting Cycle Step #4: Posting To provide a clear picture of how a business transaction changes an account’s balance, the information in a journal entry is posted to the general ledger. Purpose of posting is to show the impact of business transactions on the individual accounts. Ledger is sometimes called the book of final entry. First…in the last section, you learned how to open accounts in the general ledger. In this section you will learn how to post general journal entries to the ledger. 9/19/2018

Ideally the accounts are posted daily to keep them up-to-date Size of business, # of transactions, & whether the accounting system is manual or computerized all affect how often posting occurs. Ideally the accounts are posted daily to keep them up-to-date 9/19/2018

Posting from General Journal to Ledger Accounts Enter date of journal entry Description column is usually blank. Some businesses use this space to write in the source document # Enter journal letter & page number in Post. Ref. column Enter debit amount Compute new account balance Enter account number in general journal Post. Ref. column 6. This step in the posting process is very important. The notation in the Posting Reference column of the journal indicates that the journal entry has been posted. The posting reference also shows the account to which the entry was posted. If the posting process is interrupted, perhaps by a telephone call, the posting reference signals the point at which posting stopped. Never write an account number in the Posting Reference column until after you have posted. 9/19/2018

Importance of Posting Posting organizes business transaction details into the proper accounts. Posting summarizes all business transactions so managers can see the cumulative effects on accounts. Examine the journal entries in Fig. 7.6 on page 171. Have all these journal entries been posted to the general ledger? How can you tell from the general journal form? 3. Post. Ref. contains the account numbers. 9/19/2018

General Ledger Account Balances Computing a New Account Balance Rule of thumb: Debits are added to debits Credits are added to credits Debits & credits are subtracted Compute the new account balance as follows: When the existing account balance is a debit, and The amount posted is a debit, ADD the amounts The amount posted is a credit, SUBTRACT the amounts When the existing account balance is a credit, and The amount posted is a debit, SUBTRACT the amounts The amount posted is a credit, ADD the amounts First…on a four-column ledger account form, each time you post to an account, you also compute & show the new account balance. 9/19/2018

Showing a Zero Balance in a Ledger Account To save space the journal entries for more than one month are entered on the same ledger page (Post. Ref. will change) Showing a Zero Balance in a Ledger Account To show a zero balance after you post a transaction, draw a line across the center of the column – where the normal balance would appear. 9/19/2018

Preparing a Trial Balance (7.3) Accountants use a trial balance to prove that the accounting system is in balance This is step #5 in the accounting cycle Trial balance provides assurance that the journal entries are posted properly Total of all debit balances should equal the total of all credit balances Proving the ledger- comparing the two totals to see whether they are equal In the last section, you learned how to post to the ledger. In this section, you will learn how to prepare a trial balance. 9/19/2018

Trial Balance Formal way to prove the ledger…list of all account names & their current balances All debit balances are added All credit balances are added If totals are same, trial balance is in balance If not equal, an error was made in journalizing, posting, or preparing the trial balance You must find the error & correct it before continuing with the next step in the accounting cycle 9/19/2018

Errors are often made when preparing the trial balance even though posting & journalizing were done correctly What might happen in the process of preparing the trial balance to cause an error? Ans. - Omission of an account, transposing numbers, writing debit balance in credit column and vice versa., adding columns incorrectly 9/19/2018

Finding & Correcting Errors Finding errors: most trial balance errors can be located easily & quickly. Follow these steps: Add columns again Find difference between debit & credit amounts Check if the amount you are out of balance is evenly divisible by 9 (numbers transposed) Slide error- a decimal point is moved by mistake Make sure all general ledger accounts are included One of the account balance could have been recorded in the wrong column Recompute the balance in each ledger account Check the general ledger accounts to verify that the correct amounts are posted from the journal entries. 3. If it is, a transposition error occurred. 9/19/2018

Correcting entries When mistakes are made in Accounting never erase them Three types of errors: Error in a journal entry that is not posted Error in posting to the ledger when the journal entry is correct Error in a journal entry that is posted (correcting entry) Draw a single line through the incorrect item in the journal & write the correction directly above it. Draw a single line through the incorrect item in the ledger & write the correction directly above it. After posting, make a correcting entry to fix the error. Posting a correcting entry is similar to any other posting. In the Description column of the ledger accounts, however, the words correcting entry are written. 9/19/2018