1. Posting to a General Ledger CHAPTER 6

2.  Understand the concept of what “posting” is  Understand what a Chart of Accounts is and how to prepare one GOALS FOR TODAY

3. Analyzing Journalizing Posting THE ACCOUNTING CYCLE

4.  We said that a Journal was a business version of a d---y. diary  Like a diary, a Journal records events (transactions) in c___________l order chronological REMEMBERING JOURNALS

5.  For example, you might write in a diary a concert you went to in January, a Red Wings game in February, a Pistons game in March, a movie in April, another concert in April, a Tigers game in May, and another movie in May.  The diary doesn’t separate out just the concerts you went to, just the movies, or just the sporting events. WHAT IS MISSING FROM A JOURNAL?

6.  You need a separate list for each type of event, so that you can see all of the concerts you went to and all of the sporting events, in one place.  The same thing is true in Accounting. WHAT YOU NEED

7.  An accounting Journal lists all transactions in chronological order. It does not show all of the changes in one account, in one place.  Accountants use a form called a “general ledger” to summarize in one place, all of the changes to a single account. WHY A JOURNAL ISN’T ENOUGH

8.  A ledger means a “list of accounts.”  The general ledger lists all of a company’s accounts. WHAT IS A LEDGER?

9.  In one notebook, you keep your diary. You write each event, whether it is a concert, a movie, or a sporting event.  In the other notebook, you have one page where you list just the concerts you’ve attended.  On another page, you list just the movies, and on a third page, you list the sporting events you’ve attended. IMAGINE TWO NOTEBOOKS

10.  Now apply that to Accounting. You have one notebook (the General Journal). It records all of the transactions for your business in chronological order.  You have a second notebook, with one page for each account.  You have one page for Cash, one for Accounts Receivable, one for Prepaid Insurance, one for Accounts Payable, one for Rent Expense, one for the owner’s Capital account, etc. ACCOUNTING: TWO NOTEBOOKS

11.  In Accounting, this second “notebook” is called the general ledger.  Each account in the general ledger has a name (e.g., Cash, Accounts Payable).  Each account in the general ledger also has a number that is unique to that account. THE SECOND NOTEBOOK

12. Why would a business need a ledger?  A business needs a ledger to see a current, up- to-date balance for an account.  It is also a convenient way to track how the account balance has changed over time.  This information can help a business plan for the future. (E.g., does the business have enough cash? Too much cash? Does the company have too many accounts payable or other liabilities? How much is the owner withdrawing?) WHY DO YOU NEED A LEDGER?

13.  Why do we need a general ledger? Why isn’t a Journal adequate to record business transactions?  You need a general ledger to summarize all the changes to one account in one place. A Journal isn’t enough because you would have to search through all of the entries to find the transactions that affect a single account. QUIZ

14. What is a general ledger?  “Ledger” means a list of accounts. A general ledger contains a list of all of the accounts of a business.  The accounts in a general ledger will be used to prepare a company’s financial statements. QUIZ

15.  Each account in the general ledger has a number.  So, the cash account has a number, accounts receivables has a number, the owner’s capital account has a number, etc.  The numbers show where the account is in the general ledger.  A list of account titles and numbers is called a “chart of accounts. ” CHART OF ACCOUNTS

16. Every account in the general ledger has a _______________?  Every account has a number. What does the number of an account tell us?  An account’s number tells us where the account is located in the general ledger.  What is a “chart of accounts?”  A list of account titles and numbers. QUIZ

17. Accounts in a general ledger are arranged in the order they appear on a financial statement: 1. Assets 2. Liabilities 3. Owner’s Equity 4. Revenue 5. Expenses HOW DOES AN ACCOUNT GET A NUMBER?

18.  Assets, Liabilities, and Owner’s Equity are the Balance Sheet Accounts, because they appear on the Balance Sheet. BALANCE SHEET ACCOUNTS

19.  Revenue and Expenses are the Income Statement Accounts, because they appear on the Income Statement. INCOME STATEMENT ACCOUNTS

20. Normally, each account is assigned a 3-digit number. (A company may use more or fewer digits.)  The first digit of each account number shows which section of the general ledger the account is located. NUMBERING GENERAL LEDGER ACCOUNTS

21. Each account in a section has the same first digit, as follows : 1. Assets All asset accounts begin with the number 1. NUMBERING GENERAL LEDGER ACCOUNTS (CONTINUED)

22. Each account in a section has the same first digit, as follows : 2. Liabilities All Liability accounts begin with the number 2. NUMBERING GENERAL LEDGER ACCOUNTS (CONTINUED)

23. Each account in a section has the same first digit, as follows : 3. Owner’s Equity All Owner’s Equity accounts begin with the number 3. NUMBERING GENERAL LEDGER ACCOUNTS (CONTINUED)

24. Each account in a section has the same first digit, as follows : 4. Revenue All Revenue accounts begin with the number 4. NUMBERING GENERAL LEDGER ACCOUNTS (CONTINUED)

25. Each account in a section has the same first digit, as follows : 5. Expenses All Expense accounts begin with the number 5. NUMBERING GENERAL LEDGER ACCOUNTS (CONTINUED)

26. If an account has number 520, which of the following could it be? (a) Accounts Receivable (b) Mary Smith, Capital (c) Sales (d) Repair Expense QUIZ

27.  An account that has a first digit of 5 (520), MUST be an expense account.  Therefore, the account must be (d) Repair Expense ANSWER:

28. QUIZ If the number of an account is 340, which of the following must it be? (a) Mary Smith, Capital (b) Accounts Payable (c) Cash (d) Rent Expense

29. Accounts that begin with a 3 are Owner’s Equity Accounts. Therefore, the answer is (a). ANSWER

30. If an account has the number 410, which of the following must it be: (a) Mary Smith, Drawing (b) Sales (c) Cash (d) Prepaid Insurance QUIZ

31. Revenue accounts begin with the letter 4. Therefore, his account must be Sales. ANSWER

32.  The second and third digits tell you where, within the section of the general ledger (i.e., section 1 – assets, section 2, liabilities, etc.)  Account number 140 comes after account 130 and before 150.  In other words, accounts are arranged in numerical order, from lesser numbers to greater numbers. NUMBERING GENERAL LEDGER ACCOUNTS

33.  The actual numbers assigned are unique to a business.  Usually, the numbers increase in units of 10 (e.g., 210, 220, 230.) NUMBERING GENERAL LEDGER ACCOUNTS (CONTINUED)

34. Balance Sheet Accounts (100) Assets 110 Cash 120 Supplies 140 Prepaid Insur. (200) Liabilities 210 Accounts Payable (300) Owner’s Equity 310 M. Smith, Capital 320 M. Smith, Drawing Income Statement Accounts (400) Revenue (410) Sales (500) Expenses 510 Advertising Exp. 520 Rent Exp. 530 Misc. Exp. CHART OF ACCOUNTS

35. AnalyzeJournalizePost ACCOUNTING CYCLE

36. To post: 1.You break the journal entries down into each account affected. 2.You find that account in the ledger. 3.Write the date in the date column (on the left) (day only unless it’s a new page or month/year have changed) POSTING, EXPLAINED

37. Take a journal entry on page 1 of the General Journal: Date Account Title PR Debit Credit Sept. 23Supplies1,577.00 Cash 1,577.00 1.Find the “Supplies” Account in the General Ledger (How do you find it? What number does it start with?) 2.Enter the date in the “Date” column on the left side Account SuppliesAccount No. 130 Date ItemPRDebit Credit Balance Sept. 23 EXAMPLE

38. 3. Write the Number of the Journal Page where the entry is located, in the PR (Posting Reference) column of the GL account Account Supplies Account No. 130 Date Item PR Debit Credit Bal. Sept. 1 23 EXAMPLE (CONTINUED)

39. 4.Write the amount in the correct column (debit or credit) Account SuppliesAccount No. 130 DateItem PR Debit Credit Bal. Sept. 1 1,577.00 23 EXAMPLE (CONTINUED)

40. 5.Write the new balance in the Balance column Account SuppliesAccount No. 130 DateItem PR Debit Credit Balance Sept. 1 1,577.00 1,577.00 23 EXAMPLE (CONTINUED)

41. The new balance equals the previous balance plus or minus the new entry. How do you know whether the balance is increasing or decreasing? The same rule applies – DEAD CLOR HOW DO YOU COMPUTE THE BALANCE?

42. If the GL account has a new balance, how do you compute the new balance? Account SuppliesAccount No. 130 DateItem PR Debit Credit Balance Sept. 1,000.00 23 1,577.00 2,577.00 EXAMPLE WITH A PREVIOUS BALANCE

43. 6. Go back to the Journal, and write the account number in the PR (Posting Reference) column of the Journal Account SuppliesAccount No. 130 DateItem PR Debit Credit Balance Sept. 1 1,577.00 1,577.00 23 Date Account Title PR Debit Credit Sept. 23Supplies 1301,577.00 Cash 1,577.00 EXAMPLE (CONTINUED)

44. 1.You break the journal entries down into each account affected. 2.You find that account in the ledger. 3.Write the date in the date column (on the left) (day only unless it’s a new page or month/year have changed) 4.Write the amount in the correct column (debit or credit) 5.Write the new balance in the Balance column. 6.Go back to the Journal, and write the account number in the PR (Posting Reference) column of the Journal STEPS TO POST TO THE GL

45. Take a journal entry on page 1 of the General Journal: Date Account Title PR Debit Credit Sept. 23Supplies1,577.00 Cash 1,577.00 1.Find the “Cash” Account in the General Ledger (How do you find it? What number does it start with?) 2.Enter the date in the “Date” column on the left side Account CashAccount No. 110 Date ItemPRDebit Credit Balance Sept. 23 EXAMPLE 2

46. 3. Write the Number of the Journal Page where the entry is located, in the PR (Posting Reference) column of the GL account Account Cash Account No. 110 DateItem PR Debit Credit Balance Sept. 1 23 EXAMPLE (CONTINUED)

47. 4.Write the amount in the correct column (debit or credit) Account Cash Account No. 10 DateItem PR Debit Credit Bal. Sept. 1 1,577.00 23 EXAMPLE (CONTINUED)

48. 5.Write the new balance in the Balance column Account Cash Account No. 110 DateItem PR Debit Credit Balance 2,000.00 Sept. 1 1,577.00 423.00 23 EXAMPLE (CONTINUED)

49. 6. Go back to the Journal, and write the account number in the PR (Posting Reference) column of the Journal Account Cash Account No. 10 DateItem PR Debit Credit Balance Sept. 1 1,577.00 423.00 23 Date Account Title PR Debit Credit Sept. 23Supplies 1301,577.00 Cash110 1,577.00 EXAMPLE (CONTINUED)

50. Always enter the posting reference LAST. That signals that the posting is complete. REMEMBER:

51. 3 reasons: 1.You can trace an entry in an GL account to the original journal entry and source document; 2.You can trace an entry in the Journal to the GL account; 3.If you stop during posting, anyone can see which accounts are posted and which aren’t (that’s why you do the PR last.) WHY DO WE DO POSTING REFERENCES?

52. Now you know how to post from the general journal. But some businesses use special columns in the journal, usually for Sales and Cash. How do we post them? POSTING FROM SPECIAL JOURNALS

53. Some businesses use a special Sales Credit column. All Sales are credited to this account. (Normally, you would not debit Sales.) You CAN post each entry in the Sales Credit column separately to the Sales Account in the General Ledger. (What number would the Sales Account start with?) (4 – Revenue) SALES CREDIT COLUMN

54. But, all of the amounts are credits to the Sales column. So, only the column TOTAL needs to be posted. That can save a lot of posting! SALES CREDIT COLUMN (CONTINUED)

55. Otherwise, the posting is the same. 1.Enter the date on the left in the Date column of the Sales Account in the General Ledger (Sales Account No. 410). 2.Write the Journal page number in the Post. Ref. column of the account in the General Ledger. 3.Write the column total in the Credit column of the Sales Account in the General Ledger. 4.Write the new account balance in the Balance Column. 5.Go back to the Journal and write the account number in parentheses, e.g., (410) below the Sales Credit column total. (p. 108) SALES CREDIT COLUMN (CONTINUED)

57. Some businesses also use Journals with Debit and Credit columns for Cash. Again, you could post each of these entries separately, but it is much quicker and easier just to post the totals. You post the total the same way you post the total in the Sales Credit column. CASH DEBIT COLUMN

58. 1.Write the date in the Date column of the Cash Account in the General Ledger. 2.Write the journal page number in the Post. Ref. column of the Cash Account in the GL. 3.Write the total in the Debit Cash column, in the Debit column of the Cash Account in the GL. 4.Write the new account balance in the Balance Column (or the Balance Debit Account if they are separate. 5.Return to the Journal and write the account number in parentheses, e.g., (110), BELOW the Cash Debit column total. (p.110) CASH DEBIT COLUMN (CON’D)

59. CASH DEBIT ACCOUNT COLUMN (CON’D)