Posting to a GeneralLedger

CHAPTER 6

Understand the concept of what “posting” is

Understand what a Chart of Accounts is and how to prepare one

GOALS FOR TODAY

Analyzing Journalizing Posting

THE ACCOUNTING CYCLE

We said that a Journal was a business version of a d---y.

diaryLike a diary, a Journal records events (transactions) in c___________l order

chronological

REMEMBERING JOURNALS

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?

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

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

A ledger means a “list of accounts.”The general ledger lists all of a company’s accounts.

WHAT IS A LEDGER?

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

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

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

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?

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

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

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

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

Accounts in a general ledger are arranged in the order they appear on a financial statement:

1. Assets2. Liabilities3. Owner’s Equity4. Revenue5. Expenses

HOW DOES AN ACCOUNT GET A NUMBER?

Assets, Liabilities, and Owner’s Equity are the Balance Sheet Accounts, because they appear on the Balance Sheet.

BALANCE SHEET ACCOUNTS

Revenue and Expenses are the Income Statement Accounts, because they appear on the Income Statement.

INCOME STATEMENT ACCOUNTS

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

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)

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)

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)

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)

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)

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

An account that has a first digit of 5 (520), MUST be an expense account.

Therefore, the account must be (d) Repair Expense

ANSWER:

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

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

ANSWER

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

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

ANSWER

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

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)

Balance Sheet Accounts(100) Assets110 Cash120 Supplies140 Prepaid Insur.(200) Liabilities210 Accounts Payable(300) Owner’s Equity310 M. Smith, Capital320 M. Smith, Drawing

Income Statement Accounts(400) Revenue(410) Sales

(500) Expenses510 Advertising Exp.520 Rent Exp.530 Misc. Exp.

CHART OF ACCOUNTS

Analyze

Journalize

Post

ACCOUNTING CYCLE

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

Take a journal entry on page 1 of the General Journal :Date Account Title PR Debit CreditSept. 23 Supplies 1,577.00

Cash 1,577.001. 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 sideAccount Supplies Account No. 130 Date Item PR Debit Credit Balance Sept.23

EXAMPLE

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. 123

EXAMPLE (CONTINUED)

4. Write the amount in the correct column (debit or credit)

Account Supplies Account No. 130 Date Item PR Debit Credit Bal. Sept. 1 1,577.0023

EXAMPLE (CONTINUED)

5. Write the new balance in the Balance column

Account Supplies Account No. 130

Date Item PR Debit Credit BalanceSept. 1 1,577.00 1,577.0023

EXAMPLE (CONTINUED)

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?

If the GL account has a new balance, how do you compute the new balance? Account Supplies Account No. 130

Date Item PR Debit Credit BalanceSept. 1,000.0023 1,577.00 2,577.00

EXAMPLE WITH A PREVIOUS BALANCE

6. Go back to the Journal, and write the account number in the PR (Posting Reference) column of the JournalAccount Supplies Account No. 130

Date Item PR Debit Credit BalanceSept. 1 1,577.00 1,577.0023Date Account Title PR Debit CreditSept. 23 Supplies 130 1,577.00

Cash 1,577.00

EXAMPLE (CONTINUED)

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

Take a journal entry on page 1 of the General Journal:Date Account Title PR Debit CreditSept. 23 Supplies 1,577.00

Cash 1,577.001. 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 sideAccount Cash Account No. 110 Date

Item PR Debit Credit Balance Sept.23

EXAMPLE 2

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

Date Item PR Debit Credit Balance Sept. 123

EXAMPLE (CONTINUED)

4. Write the amount in the correct column (debit or credit)

Account Cash Account No. 10 Date Item PR Debit Credit Bal. Sept. 1 1,577.0023

EXAMPLE (CONTINUED)

5. Write the new balance in the Balance column

Account Cash Account No. 110Date Item PR Debit Credit Balance

2,000.00Sept. 1 1,577.00 423.0023

EXAMPLE (CONTINUED)

6. Go back to the Journal, and write the account number in the PR (Posting Reference) column of the JournalAccount Cash Account No. 10

Date Item PR Debit Credit BalanceSept. 1 1,577.00 423.0023Date Account Title PR Debit CreditSept. 23 Supplies 130 1,577.00

Cash 110 1,577.00

EXAMPLE (CONTINUED)

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

REMEMBER:

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?

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

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

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)

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)

SALES CREDIT COLUMN (CONTINUED)

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

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)

CASH DEBIT ACCOUNT COLUMN (CON’D)