Accounting Chapter 4 Unit 7 Notes Posting to the Ledger Mrs. Joudrey.

Accounting Chapter 4 Accounting Chapter 4 Unit 7 NotesUnit 7 Notes

Posting to the LedgerPosting to the Ledger

Mrs. JoudreyMrs. Joudrey

General JournalGeneral Journal

A general journal is a chronological (by A general journal is a chronological (by date) record of all transactions However it date) record of all transactions However it DOES NOT record the totals for each of DOES NOT record the totals for each of the accounts. the accounts.

Information from the general journal is Information from the general journal is transferred to the general ledger by a transferred to the general ledger by a process called POSTING. process called POSTING.

Business Transaction Business Transaction Journal Journal Ledger Ledger

BALANCE-COLUMN LEDGER BALANCE-COLUMN LEDGER ACCOUNTACCOUNT

We used T-accounts to learn the rules of We used T-accounts to learn the rules of debit and credit, but T-accounts are not debit and credit, but T-accounts are not very practical in the business world. The very practical in the business world. The most widely used form of account is the most widely used form of account is the “BALANCE-COLUMN LEDGER “BALANCE-COLUMN LEDGER ACCOUNT” which is sometimes called a ACCOUNT” which is sometimes called a three-column account. three-column account.

Cash AccountCash Account

Here is an example to introduce you to Here is an example to introduce you to this. I have taken the following T-account this. I have taken the following T-account for “cash” and converted it to a balance-for “cash” and converted it to a balance-column ledger account.column ledger account.

Cash AccountCash Account

Here is what the transactions that were Here is what the transactions that were recorded in the cash T-account would look recorded in the cash T-account would look like in a balance-column ledger account. like in a balance-column ledger account.

Each account will now have its own chart Each account will now have its own chart like the one below.like the one below.

Running BalanceRunning Balance

A running balance is recorded in the balance-A running balance is recorded in the balance-column ledger on each line. column ledger on each line.

The DR./CR. column indicates if the balance on The DR./CR. column indicates if the balance on that line is a debit or credit (this would be that line is a debit or credit (this would be determined with the same logic as you would if determined with the same logic as you would if you were using a T-account – think of how you you were using a T-account – think of how you know if the balance goes on the debit or credit know if the balance goes on the debit or credit side of a T-account – same thing applies here). side of a T-account – same thing applies here).

Note how even though the entries on Nov. 3 and Note how even though the entries on Nov. 3 and 6 are credits, the balance is still a debit. 6 are credits, the balance is still a debit.

Chart of AccountsChart of Accounts

Each account in a ledger has a title Each account in a ledger has a title (example: cash) and a number (ex. 100). (example: cash) and a number (ex. 100). Accounts are placed in a ledger Accounts are placed in a ledger numerically (by number). numerically (by number). A list of the account name and number is A list of the account name and number is called a called a chart of accountschart of accounts. . Accounts are numbered in the same order Accounts are numbered in the same order as they appear on the balance sheet and as they appear on the balance sheet and income statement. income statement.

Chart of AccountsChart of Accounts

Assets are 100’sAssets are 100’s

Liabilities are 200’sLiabilities are 200’s

Owner’s Equity is 300’sOwner’s Equity is 300’s

Revenues are 400’sRevenues are 400’s

Expenses are 500’sExpenses are 500’s

Posting to a Balance-Column Form Posting to a Balance-Column Form of Ledger Accountof Ledger Account

This is how you would post a $900 general This is how you would post a $900 general journal entry to the cash account in the journal entry to the cash account in the balance column-form of ledger account:balance column-form of ledger account:

Posting to a Balance-Column Form Posting to a Balance-Column Form of Ledger Accountof Ledger Account

Steps in Posting:Steps in Posting:

Step 1: Find the account you need to use Step 1: Find the account you need to use in the ledgerin the ledger

Step 2: Record the date (month and year Step 2: Record the date (month and year don’t need to be repeated if they are the don’t need to be repeated if they are the same as the transaction above)same as the transaction above)

Step 3: Enter the amount in the correct Step 3: Enter the amount in the correct column (debit or credit)column (debit or credit)

Steps in Posting:Steps in Posting:

Step 4: Calculate the new balance – if the amount you Step 4: Calculate the new balance – if the amount you just entered is a debit and the balance is a debit you just entered is a debit and the balance is a debit you will add the numbers (same if they were both credit), will add the numbers (same if they were both credit), but if the amount you entered is different from the but if the amount you entered is different from the balance in the account (one is a debit and one is a balance in the account (one is a debit and one is a credit) you need to subtract. Same procedure as you credit) you need to subtract. Same procedure as you did in T-accounts.did in T-accounts.

Step 5: Complete the ledger posting reference column Step 5: Complete the ledger posting reference column – enter the general journal page number where the – enter the general journal page number where the amount was posted (example J3 if you entered the amount was posted (example J3 if you entered the posting on the third page of the general journal) posting on the third page of the general journal)

Steps in Posting:Steps in Posting:

Step 6: Complete the journal posting Step 6: Complete the journal posting reference column – copy the account reference column – copy the account number (example cash is 100) from the number (example cash is 100) from the ledger account into the posting reference ledger account into the posting reference (P.R.) column of the general journal. This (P.R.) column of the general journal. This number indicates that the amount in the number indicates that the amount in the general journal has been posted to the general journal has been posted to the ledger in that account (example account ledger in that account (example account 100)100)

Posting ReferencesPosting References

Numbers in the P.R. (posting reference) Numbers in the P.R. (posting reference) columns serve an important purpose. They columns serve an important purpose. They are cross references that link particular are cross references that link particular journal entries to corresponding posting to journal entries to corresponding posting to the ledger. the ledger.

A journal page number in the ledger A journal page number in the ledger account indicates where more information account indicates where more information about the transaction can be found. about the transaction can be found.

Posting ReferencesPosting References

The ledger account number in a journal P.R. The ledger account number in a journal P.R. column indicates that the amount has actually column indicates that the amount has actually been posted (that is why we NEVER record this been posted (that is why we NEVER record this before we have actually posted the amount to before we have actually posted the amount to that account). This is how you or someone else that account). This is how you or someone else will be able to tell where you left off in your will be able to tell where you left off in your postings. postings.

These numbers also help auditors. An audit is a These numbers also help auditors. An audit is a check of accounting records and procedures by check of accounting records and procedures by an accountant. an accountant.

ActivityActivity

Record the following general journal Record the following general journal entries into your general ledger as entries into your general ledger as practice: (note – previous balance in the practice: (note – previous balance in the cash account was $4000 DR. )cash account was $4000 DR. )

Write Forwarded in the particulars column.Write Forwarded in the particulars column.

ActivityActivity

Answers:Answers:

Answers:Answers:

Opening the Books Opening the Books

The Opening Entry is prepared when a business The Opening Entry is prepared when a business first begins operation. first begins operation. Let’s say on September 1, K. Schmidt invested Let’s say on September 1, K. Schmidt invested $4 000 of his own money, bought a $20 000 $4 000 of his own money, bought a $20 000 truck, and $5 000 of equipment and borrowed truck, and $5 000 of equipment and borrowed $15 000 from a bank to start a painting $15 000 from a bank to start a painting business. Please complete the following:business. Please complete the following:Step 1 – figure out the owner’s equity (using Step 1 – figure out the owner’s equity (using balance sheet equation)balance sheet equation)Step 2 – enter these amounts into a general Step 2 – enter these amounts into a general journal.journal.

AnswerAnswer

Opening Ledger AccountsOpening Ledger Accounts

We used to complete a general ledger We used to complete a general ledger using separate T-accounts for each using separate T-accounts for each account, now we will use balance column account, now we will use balance column ledger accounts for that purpose. ledger accounts for that purpose.

To Open a New Ledger Account:To Open a New Ledger Account:

Write the name of the account Write the name of the account Write the account numberWrite the account numberWrite the dateWrite the dateWrite “opening entry” in the particulars column. Write “opening entry” in the particulars column. (ONLY FOR THE OPENING OF A BUSINESS) (ONLY FOR THE OPENING OF A BUSINESS) Write J# (write the letter J and the page Write J# (write the letter J and the page number that relates to where you got this entry number that relates to where you got this entry from the general journal). Example: write J5 if from the general journal). Example: write J5 if this entry was recorded on page 5 of the this entry was recorded on page 5 of the general journal. general journal.

To Open a New Ledger Account:To Open a New Ledger Account:

Record the amount in the correct debit or Record the amount in the correct debit or credit column (think of T-accounts)credit column (think of T-accounts)Enter the balance in the balance columnEnter the balance in the balance columnDepending on the balance, write Dr. or Cr. In Depending on the balance, write Dr. or Cr. In the Dr./Cr. Columnthe Dr./Cr. ColumnEnter the ledger account number in the posting Enter the ledger account number in the posting reference column of the general journal. reference column of the general journal. Example: if you just posed the cash amount Example: if you just posed the cash amount write 100 (since this is the number for cash) in write 100 (since this is the number for cash) in the P.R. column in the general journal.the P.R. column in the general journal.Insert the account in numerical sequence. Insert the account in numerical sequence.

Create opening entries for these Create opening entries for these accounts:accounts:

Answers:Answers:

Answers:Answers:

Forwarding ProceduresForwarding Procedures

Once an account page is full you will need to Once an account page is full you will need to record the balance at the end of the page on the record the balance at the end of the page on the top of the new page. top of the new page. To do this you will record the same heading To do this you will record the same heading information (account name and number) then information (account name and number) then you will write the same date as the one from the you will write the same date as the one from the previous page and write the word “Forwarded” in previous page and write the word “Forwarded” in the particulars column on the last line of the the particulars column on the last line of the previous page (the one that is full) and on the previous page (the one that is full) and on the first line of the new page (next to the date).first line of the new page (next to the date). Place a check mark in the P.R. column Place a check mark in the P.R. column

Note: the particulars column is seldom used Note: the particulars column is seldom used aside from those two instances.aside from those two instances.

Note: the particulars column is seldom used Note: the particulars column is seldom used aside from those two instances.aside from those two instances.

Reviewing the Trial BalanceReviewing the Trial Balance

We are going to create the trial balances We are going to create the trial balances the same, but now if there is a column the same, but now if there is a column called Acc. No. you are going to record the called Acc. No. you are going to record the account number for each item on the trial account number for each item on the trial balance. balance.

Example:Example:

Dealing with ErrorsDealing with Errors

Transposition ErrorTransposition ErrorNumbers recorded in the wrong order.Numbers recorded in the wrong order.To find the error:To find the error:Re-add the columns to make sure there Re-add the columns to make sure there has been a mistakehas been a mistakeFigure out what the difference would be Figure out what the difference would be (example if debits are 2075 and credits are (example if debits are 2075 and credits are 2165) from the trial balance (difference 2165) from the trial balance (difference here is $90)here is $90)

Dealing with ErrorsDealing with Errors

Is the difference easily divisible by 9? If Is the difference easily divisible by 9? If this is correct (as in our example 90/9=10) this is correct (as in our example 90/9=10) then the numbers could be recorded out of then the numbers could be recorded out of sequence and also have a difference of 1.sequence and also have a difference of 1.Check each number for a reversal (two Check each number for a reversal (two numbers written in the wrong order – numbers written in the wrong order – example 89 written as 98) – also notice example 89 written as 98) – also notice these numbers have a difference of 1 9-8 these numbers have a difference of 1 9-8 = 1= 1

Correcting Journal EntriesCorrecting Journal Entries

Suppose this entry has been made:Suppose this entry has been made:

But the amount should have been $500 But the amount should have been $500 not $50.not $50.

Correcting Journal EntriesCorrecting Journal Entries

You first have to cancel the entry (opposite You first have to cancel the entry (opposite of how you had posted it)of how you had posted it)

Correcting Journal EntriesCorrecting Journal Entries

Then you must re-enter the transaction the Then you must re-enter the transaction the way it should have been doneway it should have been done

AssignmentAssignment

Please complete questions 9-18 on page Please complete questions 9-18 on page 131 131