1. 0 Glencoe Accounting Unit 2 Chapter 7 Copyright © by The McGraw-Hill Companies, Inc. All rights reserved. Unit 2 The Basic Accounting Cycle Chapter 3 Business Transactions and the Accounting Equation Chapter 4Transactions That Affect Assets, Liabilities, and Owner’s Capital Chapter 5Transactions That Affect Revenue, Expenses, and Withdrawals Chapter 6Recording Transactions in a General Journal Chapter 7Posting Journal Entries to General Ledger Accounts Chapter 8The Six-Column Work Sheet Chapter 9Financial Statements for a Sole Proprietorship Chapter 10Completing the Accounting Cycle for a Sole Proprietorship Chapter 11Cash Control and Banking Activities

2. 1 Glencoe Accounting Unit 2 Chapter 7 Copyright © by The McGraw-Hill Companies, Inc. All rights reserved. Chapter 7 Posting Journal Entries to General Ledger Accounts What You’ll Learn  Describe the steps in the posting process.  Post general journal entries.  The steps involved in the preparation of a trial balance.  How to find and correct errors in a trial balance.  Record correcting entries in the general journal.  Define the accounting terms introduced in this chapter.

3. 2 Glencoe Accounting Unit 2 Chapter 7 Copyright © by The McGraw-Hill Companies, Inc. All rights reserved. Chapter 7, Section 1 The General Ledger What Do You Think? Why do you think an accounting system uses a general ledger?

4. 3 Glencoe Accounting Unit 2 Chapter 7 Copyright © by The McGraw-Hill Companies, Inc. All rights reserved. Main Idea The general ledger is a permanent record organized by account number. You Will Learn  how to set up the general ledger.  how managers use journals and ledgers. The General Ledger SECTION 7.1

5. 4 Glencoe Accounting Unit 2 Chapter 7 Copyright © by The McGraw-Hill Companies, Inc. All rights reserved. Key Terms  posting  general ledger  ledger account forms The General Ledger SECTION 7.1

6. 5 Glencoe Accounting Unit 2 Chapter 7 Copyright © by The McGraw-Hill Companies, Inc. All rights reserved. Setting Up the General Ledger Accounts used by a business are kept on separate pages or cards in a book or file called a ledger. It is important for a number of reasons:  This creates a record of the impact of business transactions on each account used by a business.  Helps managers easily find the current balance of a specific account. The General Ledger SECTION 7.1

7. 6 Glencoe Accounting Unit 2 Chapter 7 Copyright © by The McGraw-Hill Companies, Inc. All rights reserved. Setting Up the General Ledger PostingPosting is the process of transferring information from the journal to individual ledger accounts. It is the process by which random transactions become organized in a manner according to accounts. The General Ledger SECTION 7.1

8. 7 Glencoe Accounting Unit 2 Chapter 7 Copyright © by The McGraw-Hill Companies, Inc. All rights reserved. Setting Up the General Ledger All transactions must be moved to a permanent record organized by account number called a general ledger. This information is continually used by managers. It provides up-to-date balances for each account, including accounts payable and receivable:general ledger  In a computerized system, electronic files are still referred to as a ledger, or the ledger accounts.  Managers use ledgers to obtain summarized information. The General Ledger SECTION 7.1

9. 8 Glencoe Accounting Unit 2 Chapter 7 Copyright © by The McGraw-Hill Companies, Inc. All rights reserved. The Fourth Step in the Accounting Cycle: Posting Information in a journal entry is posted to the general ledger to provide a clear picture of how a business transaction changes an account’s balance. The General Ledger SECTION 7.1

10. 9 Glencoe Accounting Unit 2 Chapter 7 Copyright © by The McGraw-Hill Companies, Inc. All rights reserved. The Four-Column Ledger Account Form In a manual accounting system, information about specific accounts is recorded in ledger account forms:ledger account forms  The forms are defined by the number of columns into which a dollar amount goes.  Debit and 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. The General Ledger SECTION 7.1

11. 10 Glencoe Accounting Unit 2 Chapter 7 Copyright © by The McGraw-Hill Companies, Inc. All rights reserved. The Four-Column Ledger Account Form The four-column ledger account form has spaces to enter the account name, the account number, the date, a description of the entry, and the posting reference. The General Ledger SECTION 7.1

12. 11 Glencoe Accounting Unit 2 Chapter 7 Copyright © by The McGraw-Hill Companies, Inc. All rights reserved. Key Terms  posting The process of transferring information from the journal to individual general ledger accounts.  general ledger A permanent record organized by account number.  ledger account form The accounting stationery used to record financial information about specific accounts. The General Ledger SECTION 7.1

13. 12 Glencoe Accounting Unit 2 Chapter 7 Copyright © by The McGraw-Hill Companies, Inc. All rights reserved. Chapter 7, Section 2 The Posting Process What Do You Think? Why is posting necessary since the transaction is recorded in the general journal?

14. 13 Glencoe Accounting Unit 2 Chapter 7 Copyright © by The McGraw-Hill Companies, Inc. All rights reserved. Main Idea Posting is the process of transferring information from the journal to individual accounts in the ledger. You Will Learn  how to post transactions to the general ledger.  how to compute account balances. The Posting Process SECTION 7.2

15. 14 Glencoe Accounting Unit 2 Chapter 7 Copyright © by The McGraw-Hill Companies, Inc. All rights reserved. Posting Transactions Journal entries do not show a clear picture of how a business transaction changes an account’s balance. Posting shows the final impact on an account, which is why a ledger is sometimes called a book of final entry:  Posting intervals are determined by the size of the business, and whether the accounting system is computerized or manual.  The posting process always remains the same.  The process is always performed from left to right. The Posting Process SECTION 7.2

16. 15 Glencoe Accounting Unit 2 Chapter 7 Copyright © by The McGraw-Hill Companies, Inc. All rights reserved. Posting to the Roadrunner General Ledger There are six steps required for posting journal entries to a ledger: 1.Enter the date of the journal entry in the Date column. 2.The Description column is usually left blank, but can be used to write in the source document. 3.Enter journal letter and page number in Post. Ref. column. 4. Enter the debit amount in the Debit column. 5. Compute the new account balance. 6. Enter the account number in the general journal Post. Ref. column. 7. Repeat steps 1-6 for the credit part of the journal entry. The Posting Process SECTION 7.2

17. 16 Glencoe Accounting Unit 2 Chapter 7 Copyright © by The McGraw-Hill Companies, Inc. All rights reserved. The Posting Process SECTION 7.2

18. 17 Glencoe Accounting Unit 2 Chapter 7 Copyright © by The McGraw-Hill Companies, Inc. All rights reserved. Computing a New Account Balance A new account balance is computed each time a transaction is posted to an account. 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. The Posting Process SECTION 7.2

19. 18 Glencoe Accounting Unit 2 Chapter 7 Copyright © by The McGraw-Hill Companies, Inc. All rights reserved. Computing a New Account Balance A ledger account with several postings. The Posting Process SECTION 7.2

20. 19 Glencoe Accounting Unit 2 Chapter 7 Copyright © by The McGraw-Hill Companies, Inc. All rights reserved. Computing a New Account Balance A ledger account with a zero balance. The Posting Process SECTION 7.2

21. 20 Glencoe Accounting Unit 2 Chapter 7 Copyright © by The McGraw-Hill Companies, Inc. All rights reserved. Chapter 7, Section 3 Preparing a Trial Balance What Do You Think? Why must total debits equal total credits?

22. 21 Glencoe Accounting Unit 2 Chapter 7 Copyright © by The McGraw-Hill Companies, Inc. All rights reserved. Main Idea To learn how to prove that your accounting system is in balance. It is the proof that your total debits equal your total credits. You Will Learn  the steps in preparing a trial balance.  how to find and correct errors in a trial balance. Preparing a Trial Balance SECTION 7.3

23. 22 Glencoe Accounting Unit 2 Chapter 7 Copyright © by The McGraw-Hill Companies, Inc. All rights reserved. Key Terms  proving the ledger  trial balance  transposition error  slide error  correcting entry Preparing a Trial Balance SECTION 7.3

24. 23 Glencoe Accounting Unit 2 Chapter 7 Copyright © by The McGraw-Hill Companies, Inc. All rights reserved. The Fifth Step in the Accounting Cycle: The Trial Balance In order for an accounting system to work efficiently, it is important to remember the necessary steps to keep it in balance:  Calculating the balance.  Finding any errors that may have occurred.  Using general rules and guidelines to narrow down where and why the mistake was made.  Correcting the mistake. Preparing a Trial Balance SECTION 7.3

25. 24 Glencoe Accounting Unit 2 Chapter 7 Copyright © by The McGraw-Hill Companies, Inc. All rights reserved. The Fifth Step in the Accounting Cycle: The Trial Balance Once the journal entries have been properly posted to the ledger, the sum of the debits should equal the sum of the credits. The final figures should be the same; this is called proving the ledger.proving the ledger Preparing a Trial Balance SECTION 7.3

26. 25 Glencoe Accounting Unit 2 Chapter 7 Copyright © by The McGraw-Hill Companies, Inc. All rights reserved. The Fifth Step in the Accounting Cycle: The Trial Balance To prove the ledger, accountants prepare a list of all the account names and their current balances. This list is called the trial balance.trial balance If the totals are equal, the trial balance is in balance. If they are not, try adding the columns up again. If there is still a mistake, it must be corrected. Preparing a Trial Balance SECTION 7.3

27. 26 Glencoe Accounting Unit 2 Chapter 7 Copyright © by The McGraw-Hill Companies, Inc. All rights reserved. Finding an Error If there is an error, one possibility may be that two numbers were reversed when recording the information from the journal, called a transposition error.transposition error One way to help check for these kinds of errors is if the difference between the credits and the debits is divisible by 9. An example of this is if $469 was written as $496. Preparing a Trial Balance SECTION 7.3

28. 27 Glencoe Accounting Unit 2 Chapter 7 Copyright © by The McGraw-Hill Companies, Inc. All rights reserved. Finding an Error Moving a decimal point by mistake is called a slide error. An example is if you were to write $25,000 instead of $2,500. slide error Preparing a Trial Balance SECTION 7.3

29. 28 Glencoe Accounting Unit 2 Chapter 7 Copyright © by The McGraw-Hill Companies, Inc. All rights reserved. Correcting Entries If a mistake is made, it will have to be corrected with a correcting entry. These are made after the journal entry has been posted, and should never be erased. The proper procedure is: correcting entry  To post the entry in the ledger the same as any other entry.  Use the words correcting entry in the description column. Preparing a Trial Balance SECTION 7.3

30. 29 Glencoe Accounting Unit 2 Chapter 7 Copyright © by The McGraw-Hill Companies, Inc. All rights reserved. Correcting Entries Making a correcting entry to the general journal. Preparing a Trial Balance SECTION 7.3

31. 30 Glencoe Accounting Unit 2 Chapter 7 Copyright © by The McGraw-Hill Companies, Inc. All rights reserved. Preparing a Trial Balance SECTION 7.3 Correcting Entries Posting correcting entries to ledger accounts.

32. 31 Glencoe Accounting Unit 2 Chapter 7 Copyright © by The McGraw-Hill Companies, Inc. All rights reserved. Key Terms Review  proving the ledger Adding all debit balances and all credit balances of ledger accounts, and then comparing the two totals to see whether they are equal.  trial balance A list of all the general ledger account names and balances; it is prepared to prove the ledger.  transposition error Error that occurs when two digits within an amount are accidentally reversed, or transposed. Preparing a Trial Balance SECTION 7.3

33. 32 Glencoe Accounting Unit 2 Chapter 7 Copyright © by The McGraw-Hill Companies, Inc. All rights reserved. Key Terms Review  slide error Error that occurs when a decimal point is moved by mistake.  correcting entry An entry made to correct an error in a journal entry discovered after posting. Preparing a Trial Balance SECTION 7.3

34. 33 Glencoe Accounting Unit 2 Chapter 7 Copyright © by The McGraw-Hill Companies, Inc. All rights reserved. Question 1 You have just completed a trial balance and the columns are not equal. List the steps that you would use to find the error. Chapter 7 Review CHAPTER 7

35. 34 Glencoe Accounting Unit 2 Chapter 7 Copyright © by The McGraw-Hill Companies, Inc. All rights reserved. Answer 1 Step 1:Check the addition in each column. Step 2:Find the difference between the amounts in the Debit and Credit columns. If the difference is 10, 100, etc., you probably have made an addition error. Step 3: If the difference found in Step 2 is divisible by 9, you probably have made a slide or transposition error. Step 4: Check to see whether any of the general ledger accounts has a balance equal to the difference found in Step 2. Chapter 7 Review CHAPTER 7 (continued)

36. 35 Glencoe Accounting Unit 2 Chapter 7 Copyright © by The McGraw-Hill Companies, Inc. All rights reserved. Answer 1 Step 5: Check to see whether any of the general ledger accounts has a balance equal to one- half of the difference. This would indicate that you may have moved a debit balance to the credit side of the trial balance or vice versa. Step 6: Check the accuracy of the general ledger accounts by recalculating the balances. Step 7: Check the individual postings from the general journal to the general ledger to make sure you have correctly posted the amounts and posted debits as debits and credits as credits. Chapter 7 Review CHAPTER 7

37. 36 Glencoe Accounting Unit 2 Chapter 7 Copyright © by The McGraw-Hill Companies, Inc. All rights reserved. Question 2 Is it possible to have amounts in both the Debit and Credit balance columns of a four-column ledger account? Chapter 7 Review CHAPTER 7

38. 37 Glencoe Accounting Unit 2 Chapter 7 Copyright © by The McGraw-Hill Companies, Inc. All rights reserved. Answer 2 No, the balance columns exist to show the cumulative effect of debits and credits to an account. If debits exceed credits, the account will have a debit balance, which is entered in the Debit column. If credits exceed debits, the account will have a credit balance, which is entered in the Credit column. Chapter 7 Review CHAPTER 7

39. 38 Glencoe Accounting Unit 2 Chapter 7 Copyright © by The McGraw-Hill Companies, Inc. All rights reserved. Resources Glencoe Accounting Online Learning Center English Glossary Spanish Glossary