1. 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)
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2. 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.
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3. 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.
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4. 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
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5. 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.
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6. 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.
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7. 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.
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8. 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.
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9. 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
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10. 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.
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11. 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.
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12. 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.
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13. 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.
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14. 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.
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15. 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
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16. 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
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17. 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.
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18. 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.
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