Study: Post Transactions to Account Ledgers

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Slides 1-3 (1m:22s) Links to an external site.Welcome to Introduction to Accounting Preparing for a User’s Perspective
Post Journal Entries to Account Ledgers

Congratulations, you now know how to identify transactions using source documents (Step 1), analyze them (Step 2) and record the corresponding journal entries in the company’s general journal (Step 3).  Next, we need to post the journal entries into the various general ledger accounts (Step 4) so that we can then compute their balances which will be used to prepare the pre-adjusted trial balance (Step 5).  

After that, we will go through this [5-step] process with adjusting entries so we can prepare an adjusted trial balance, which will be the basis for preparing the financial statements.  We will then close all the temporary accounts and prepare a post-closing trial balance.  

Here [below] is a graphic view of the accounting cycle and, as you can see, we are going to work on this section [4) Post] where we take the general journal information and post them into the ledger accounts. 

So, for example, if we had an account receivable account with a $700 balance already, and posted a $100 debit to it, we could then say we now have $800 of accounts receivable.  

The posting process is simply transferring the data from the general journal into the respective accounts in the ledgers and these T-accounts are just visual representations of what’s called a general ledger account.  

Slide 4 (2m:28s) Links to an external site.This posting process is often taught in two different ways in accounting courses [as noted in the diagram below]. 

 

The one on the left is the more common way because we use what’s called a T-account, but this is just a visual representation of the actual ledgers used in the real world [manual accounting systems].  As you can see, here is a T [in the general ledger account format] and the balance [of the account] is kept off to the side, whereas in T-accounts here, you record the debits and credits and then you draw a line and compute the balance.  In either way it is the same information [and the same balances will be computed], so, let’s just look at how it would be done in an accounting course.  

You have to enter the beginning balances on the respective sides so this means we have $700 of accounts receivable and have earned $2,000 of consulting revenue before this transaction has even been recorded.  We then post the respective debits and credits and can compute their ending balances.  

We now have $800 of accounts receivable and have earned $2,100 of consulting revenue.  The posting process using T-accounts to represent the general ledger accounts is visualized here.  T-accounts seem to be visually easier for students to comprehend and that’s why you will often see accounting professors using T-accounts to teach this material in the classroom setting.  

Now in the real world, it actually looks more like this in a manual accounting system.  Here is the general journal as before but we’ve added a new column called a posting reference column.  That is where you put the unique numeric identifier for each account, from the chart of accounts Links to an external site., so accounts receivable will have its own unique number, consulting revenue will have its own unique number.  As soon as you post the information down here [in the account ledger] we’ll write in the posting reference number [in the general journal] to show that it has been posted.  

The posting process using realistic manual general ledger accounts is what is being shown in this example.  We’ve posted the debit to receivables, and since I posted it, I then write in the posting reference meaning, I posted a debit of $100 to the account referred to as 1100.  I then posted a credit to the account referred to as account 4100, which is consulting revenue as you can see below.  

Once the information has been posted, we can then compute [the account’s] balance.  Positive numbers represent debits and numbers with parenthesis around them [i.e. negative numbers] represent credits.  So we have a debit balance of $700, we then post another $100 debit to get to an $800 new debit balance.  

Here [in Consulting Revenue], we’ve started with a ($2,000) credit balance, we’ve credited another $100, to arrive at a ($2,100) revised credit balance.  

This is how it is really done in a manual accounting system, so I wanted you to see that.  

Slides 5-18 (2m:53s) Links to an external site.These are all the journal entries we recorded in the prior video.  If you haven’t watched that video, go back and watch it.  It’s called “Analyze Transactions and Record Journal Entries”, so I won’t take the time to discuss them here.  

This is a listing of all the general ledger accounts that will be affected by the journal entries on this prior page.

As you’ll notice, all of the opening balances are zero because it’s a brand-new company.  Now if this company were already in business for a month or so, you would see opening balances, so make sure whenever you start posting that you have the prior balances.  In this case, they are zero because it’s a new company but that will not normally be the case.

What we are going to do now is post every single journal entry from the general journal.  I have created a T-account for every single account in the ledger because this is how it is often taught in accounting courses, and I’m simply going to post these debits and credits into their respective accounts.

We had more cash, debit, we have more equipment, debit, and we have more capital stock, credit.  As you can see, as I post the information to the respective ledger accounts, I put in the posting reference.
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We have more building, $200,000 debit.  Less cash because we paid it out $40,000 credit and owe $160,000 more on the note payable [credit].  So, in other words, we bought this building by paying cash and taking out a loan.
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We prepaid our insurance, debit $12,000, more prepaid insurance and less cash [credit $12,000].

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We now have more inventory, debit $7,000 and we haven’t paid for it yet, so it’s a credit to accounts payable $7,000.
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Commission expense.  We have more commission expense $100 debit, and more payable because we haven’t paid it yet, $100 credit.
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Here, we were receiving cash, debit $4,000, why because one of our customers paid off the account receivable they owed us, credit to accounts receivable $4,000.
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Now we are receiving $200 cash debit and we are crediting dividend income $200 to show that we earned it.
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We then paid out a dividend to our shareholders.  Our dividends increased $100, that’s a debit which will wind up decreasing our retained earnings.  Our cash decreased because we paid it out, that will be a $100 credit to cash.

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Utilities expense increased $500 debit and utilities payable increased $500 credit

Slide 19 (1m:36s) Links to an external site.Now what we can do, since we have posted all of the information from the general journal, we can compute the ending balances.  This process is pretty easy.  All you have to do is add up the debit side [of an account], add up the credit side [of the same account], take the difference, and whichever side was larger, that is where the balance is.  

So, in this cash [with cash] we have more debits with $102,200 than we have credits $61,100 for cash, so the balance of $41,100 will be over here on the debit side.  

Investments, debit $5,000.
Accounts receivable, debit $1,000, because we had $5,000 in debits, we collected $4,000 in credits, so now we only have $1,000 remaining to be collected.  
Inventory, we have a debit of $4,000.  
Prepaid insurance, debit $12,000.
Equipment, debit $2,000.
Building, debit $200,000.
Accounts payable, we had a $7,000 credit minus a $4,000 debit, so the balance is going to be a credit of $3,000, which is the normal balance for accounts payable.  
Commissions payable, credit $100.  
Utilities payable, $500 credit.
Notes payable, credit $160,000.
Capital stock, credit $100,000.
Dividends, debit $100.
Sales revenue, credit $5,000.
Cost of goods sold, debit $3,000.
Debit commissions expense $100.
Debit utilities expense $500.
Credit dividend income $200.

Now we have all the ending balances based on the original transactions which we can then use to create the pre-adjusted trial balance. 

The way we would prepare the pre-adjusted trial balance is we take all of the debits, list them out, then take all of the credits, list them out and we take the total debits of $268,000 minus the total credits of $268,000 and it needs to add up to zero.  That would prove that debits do equal credits.  

Slides 20-26 (1m:09s) Links to an external site.

This [exhibit below] is a representation of the cash account ledger had we actually used this in teaching this topic, you would have seen that as I posted, each of these would be updated with a running total balance being computed on the right.  The ending balance is $41,100, and it matches what we did with the T-account, so those two numbers match.   The ledger really is just like a T-account.  We have the T in the middle with debits and credits, and we have the balance showing off to the right, rather than a line [and then the account balance noted] down below.

I am going to show you the remaining ledger accounts just so you can refer to them.  I won’t take any time to discuss them though.  If you need to look at any longer, just pause the video.

In summary, what we have done is we have gone through every single journal entry, posted the debits or credits to the respective ledger accounts, updated the ledger accounts to compute the ending balances and now those ending balances will be used to create the pre-adjusted trial balance, which should prove that the total of all debit balances equals the total of all credit balances and then we are ready to move on to the next phase which is recording the adjusting entries.

I wish you all the best on the quiz.

Aloha.