Posting Journal Entries to General Ledger Accounts Chapter 7

Exploring the Real World of Business One world ranch on which you might work is the King Ranch in Texas. Accounting for an operation like King Ranch means keeping track of the number of calves born each year or the pounds of cotton produced. What do you think? What are some general ledger account that might be used by King Ranch?

The General Ledger Section 1 You examine the ledger to review how business transactions affect each account.

What You’ll Learn The purpose of the general ledger. How to open accounts in the general ledger

Key Terms General ledger Ledger account form

In this chapter you will learn how to post journal entries to the general ledger and how to prepare a trial balance – Steps 4 & 5 in the accounting cycle.

General Ledger Up-to-date ledgers allows to accountant to provide management information such as: Sales Service income Salary or commission expense

Setting Up the General Ledger In a manual accounting system the accounts used by a business are kept on separate pages or card These pages or cards are kept together in a book called a ledger. In a computerized accounting systems the electronics files containing the accounts are still referred to as the ledger. In either system the ledger is often called the general ledger.

The Four-Column Ledger Account Form In the manual accounting system, the accounting stationery used to record information about specific accounts is a ledger account form. Notice the four amount columns: the debit column, the credit column, the debit balance column, and the credit balance column. The first two amount columns are used to enter debit and credit amounts posted from the journal entries. The last two are used to enter the new account balance after a journal entry is posted. The balance accounts show the current account balance. (normal account balance)

Opening Accounts in the Ledger Before journal entries can be posted, a general ledger account is opened for each account that appears in the chart of accounts. The number of steps required to open an account depends on whether or not the account has a zero balance.

Opening an Account with a Zero Balance There are two steps to open an account with a zero balance Write the account name at the top of the ledger account form. Write the account number on the ledger account form.

Opening an Account with a Balance To open an account with a balance, six steps are required. 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 amount entered on this line not being entered from a journal Enter the balance in the appropriate balance column in the ledger account form.

The Usefulness of Journals and Ledgers to Managers To obtain information about specific business transaction, a manager might refer to the journal entry To learn the current balance of important accounts, managers will look to the ledger accounts.

Check Your Understanding Complete the following questions and problems. Thinking Critically Communicating Accounting Problem 7-1 Opening Ledger Accounts Page 156

A Matter of Ethics Meeting a Deadline Ethical Decision Making: Imagine that you are an accounting clerk for Ace Hardware. The store manager has asked you to prepare the trial balance for the month. The totals on the trial balance are not equal and you cannot find the error. You also realize the trial balance is due at the end of the day. You are frustrated and consider changing one of the account balances just to get the trial balance to balance. Ethical Decision Making: What are the ethical issues? What are the alternatives? Who are the affected parties? How do the alternatives affect the parties? What would you do?

The Posting Process Section 2 Posting brings the records of the business up-to-date. If the business did not post its transactions, the balances in ledger accounts would not be current.

What You’ll Learn The purpose and importance of posting How often a business posts transactions. The six steps in the posting process How to compute an account balance. How to show an account with a zero balance.

Key Term Posting Posting is the process of transferring information from the general journal to individual general ledger accounts.

The Fourth Step in the Accounting Cycle: Posting The general journal is a sort of business diary containing all the transactions of the business. To provide a clear picture of how each account is affected by each transaction the journal entry is posted to the general ledger accounts. The purpose of posting is to show the impact of business transaction on the individual accounts

Posting to the Roadrunner General Ledger Roadrunner’s first transaction affects two accounts: Cash in Bank and Maria Sanchez, Capital. The information in the journal entry is transferred item by item from the journal to each of the accounts affected.

Key Points Posting to the General Ledger Accounts for every transaction you will post to at least two ledger accounts. You will post the debit part of the entry to one ledger account and the credit part of the entry to another ledger account.

Math Hints When the transactions effect both side of the accounting equation: Amounts added to one side must also be added to the other side Amounts subtracted from one side must also be subtracted from the other side

The Importance of Posting Posting organizes transaction details into proper accounts. Posting summarizes all business transactions so managers can see the cumulative effects on the accounts. Posting made to the general ledger from the general journal are illustrated on pages 160 - 162. Study the illustration to check you understanding f the posting process. (give them 3 minutes)

Computing a New Account Balance When the existing account 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 The amount posted is a debit, SUBTRACT the amounts. The amount posted is a credit, ADD the amounts. On the four-column ledger account form, each time you post to an account, you also compute a new account balance.

Key Points Calculating Balances Debit amounts are added together. Credit amounts are added together. Debit and credit amounts are subtracted.

Showing a Zero Balance in a Ledger Account To show a zero balance, a line should be drawn across the center of the column – where the normal balance would appear. For example, on October 11, Roadrunner sold a phone on account to Green Company. On October 14 Green Company paid for the account in full with a $200 check. When the October 14 journal entry is posted, Accounts receivable – Green Company has a zero balance.

Check Your Understanding Complete the following questions and problems. Thinking Critically Analyzing Accounting Problem 7-2 Posting from the General Journal to the Ledger Page 164

Preparing the Trial Balance Section 3 To present accurate financial statements, the accounts must be in balance. The purpose of a trial balance is to prove that the general ledge is in balance.

What You’ll Learn The purpose of a trial balance. How to prepare a trial balance How to identify and locate trial balance errors.

Key Terms Proving the ledger Trial balance Transposition error Slide error Correcting entry

The Fifth Step in the Accounting Cycle: The Trial Balance Proving the ledger is adding all the debit balances, then adding all the credit balances, and comparing the two total to see whether they are equal. Trial balance is a formal way to prove that debits equals credits. It is a list of all account names and their current balances.

Accounting Tips Trial Balance When preparing a trail balance, be sure to list all the general ledger accounts, in the order in which they appear in the ledger and on the chart of accounts. List even those accounts with a zero balance. Every account is listed to avoid omitting an account (and its balance) from the trial balance.

Finding Errors Add the debit and credit column again, you may have added incorrectly Find the difference between the debit and credit column. (this is the amount you are out of balance).If the amount is 10, 100, 1000 and so on, you probably made an addition error. Add the columns again. Check if the amount you are out of balance is evenly divided by 9. If the difference between the columns is evenly divisible by 9, you may have made a transposition or slide error A transposition error occurs when two digits with an amount are accidently reversed A slide error occurs when a decimal point is moved by mistake. Most trial balance errors can be located easily and quickly. When total debits do not equal total credits, follow these steps:

Finding Errors (cont.) Make sure you have included all of the general ledger accounts in the trail balance. Look in the general ledger accounts for an account balance equal to the amount you are out of balance. If all of the general ledger accounts and their balances are included in the trial balance , one of the account balances could be recorded in the wrong column. If you still have not found the error, recompute the balance in each ledger account. Finally check the general ledger accounts to verify that correct amount are posted from the journal entries.

Correcting Errors The method for correcting an error depends on when the error is found 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. Anyone who works in accounting understands the saying “to err is human…” when mistakes are made in accounting, one rule applies: Never erase an error.

Correcting Errors (cont.) Follow the correcting entry steps in the book for Roadrunner on page 168 to 169. Mistake discovered Memorandum create for correction Journal entry made date of the discovery Posted to ledger with correcting error listed in description (in each account affected) When an error in a journal entry is discovered after the posting, make a correcting entry to fix the error

Check Your Understanding Complete the following questions and problems Thinking Critically Computing in the Business World Problem 7-3 Analyzing a Source Document Problem 7-4 Recording and Posting a Correcting Entry Page 170

What You’ll Learn How to analyze business transactions in the general ledger How to post transaction in the ledger How to prepare a trial balance

Chapter 7 Problems Problem 7-7 Journalizing and Posting Business Transactions Page 175-176 Analyze Problem 7-8 Journalizing and Posting Business Transactions Page 176-177