Analyzing Transactions LO 3 – Posting Journal Entries to Accounts

Posting Journal Entries to Accounts LO 3 Posting Journal Entries to Accounts The process of transferring the debits and credits from the journal entries to the accounts is called posting. Once a company’s transactions are recorded in the journal, each account in the general ledger must be updated. Posting involves transferring the date and debit and credit information from the journal to the debit and credit sides of the accounts in the ledger. After posting, the accounts in the ledger should contain the same information as what was recorded in the journal.

Posting Journal Entries to Accounts LO 3 Posting Journal Entries to Accounts On December 1, NetSolutions paid a premium of $2,400 for an insurance policy for liability, theft, and fire. The policy covers a one-year period. On December 1, NetSolutions paid $2,400 for a one-year insurance policy, covering liability, theft, and fire.

Accounting Equation Impact LO 3 Posting Journal Entries to Accounts Accounting Equation Impact Assets = Liabilities + Owner’s Equity This transaction was recorded in the journal with a debit to Prepaid Insurance of $2,400 and a credit to Cash for $2,400. After a transaction has been journalized, the next step is to post the journal entry to the appropriate page in the ledger. Posting an entry requires several steps. decrease increase

Exhibit 4 - Steps in Posting LO 3 Exhibit 4 - Steps in Posting Step 1. The date of the transaction is entered in the Date column of Prepaid Insurance. Dec. 1 Prepaid Insurance 2,400 Cash 2,400 Paid premium on one-year policy. Dec. 1 Prepaid Insurance 2,400 Cash 2,400 Paid premium on one-year policy. The first step is entering the date in the ledger. The year, month, and day are entered because this is the first entry on the ledger page. The date, including the year, is copied into the first column of the Prepaid Insurance account. Account Prepaid Insurance Account No. 15 Date Item Ref. Debit Credit Debit Credit Post. Balance Account Prepaid Insurance Account No. 15 Date Item Ref. Debit Credit Debit Credit Post.. Balance Dec. 1 2011 2011 Dec. 1

Exhibit 4 - Steps in Posting LO 3 Exhibit 4 - Steps in Posting Step 2. The amount (2,400) is entered in the Debit column of Prepaid Insurance. Dec. 1 Prepaid Insurance 2,400 Cash 2,400 Paid premium on one-year policy. Enter the $2,400 into the Debit column. A new balance for the ledger account is computed and entered in the appropriate column in the ledger. The debit of $2,400 to Prepaid Insurance results in debit balance of $2,400. Write the balance in the Debit column labeled Balance. Use the same line for the date, the debit, and the debit balance entries. Account Prepaid Insurance Account No. 15 Date Item Ref. Debit Credit Debit Credit Post. Balance 2011 Dec. 1 2,400 2,400

Exhibit 4 - Steps in Posting LO 3 Exhibit 4 - Steps in Posting Step 3. The journal page number (2) is entered in the account’s Post. Ref. column. Dec. 1 Prepaid Insurance 2,400 Cash 2,400 Paid premium on one-year policy. The third step is entering the page number of the journal where the transaction was originally recorded into the ledger account column labeled Post. Ref. This provides a cross reference between the journal and the ledger. As this slide illustrates, the post. ref. in the ledger refers to the journal page where the transaction was originally recorded. Account Prepaid Insurance Account No. 15 Date Item Ref. Debit Credit Debit Credit Post. Balance 2011 Dec. 1 2 2,400 2,400

Exhibit 4 - Steps in Posting LO 3 Exhibit 4 - Steps in Posting Step 4. The account number (15) is entered in the journal’s Post. Ref. column. Dec. 1 Prepaid Insurance 2,400 Cash 2,400 Paid premium on one-year policy. 15 A cross reference to the ledger is written in the journal. The Post. Ref. column in the journal lists the ledger account number. Not only does this cross reference the journal entry to the ledger, it also acts as a place marker if the person posting is interrupted before finishing the posting. The Item column is typically left blank. There is no need to write a description of the transaction. Account Prepaid Insurance Account No. 15 Date Item Ref. Debit Credit Debit Credit Post. Balance 2011 Dec. 1 2 2,400 2,400

Recording and Posting of a Debit and a Credit LO 3 Recording and Posting of a Debit and a Credit These steps are repeated to post to the Cash account. These same four steps are required in the posting of the credit to the Cash account. First, the date is written in the Date column of the cash ledger, account number 11. Write the amount of the credit in the Credit column of the cash ledger account, on the same line as the date. Before posting the current transaction, the balance of cash on November 30 was $5,900 debit. After subtracting the $2,400, the new balance is $3,500 debit, or $5,900 minus $3,500. The $3,500 debit balance is entered in the Debit column. All entries are written on the same line. Do not skip a line. The journal page number, 2, is entered in the Post. Ref. column of the cash ledger account. The ledger account number for cash, 11, is entered into the Post. Ref. column of the journal. The Post. Ref. column provides a cross reference between journal and ledgers.