Double-entry Accounting System

6.4. Posting of accounting information from journals to the ledger

Next, after complete transaction data are recorded, portions of the data are summarized and transferred to another journal, called the ledger:

The ledger is a collection of all accounts a business maintains in its accounting system. With the development of computerized accounting systems, ledgers are often in the form of electronic records (databases).

So, the ledger is where information about all accounts is kept. In order for the information to get to the ledger, it must be posted from journals.

Posting is the process of transferring the accounting information from journals to the ledger. For example, all information from a cash journal is posted to the ledger to update the cash account(s).

Sometimes information in journals is summarized into homogeneous groups before posting to the ledger. For instance, if there are a lot of cash payments for supplies during a period, such payments may be summarized to limit the number of records in the ledger. Note that only homogeneous transactions are summarized before posting.

After posting has been completed, all debit and credit balances are compared to ensure they balance.

6.5. Preparing trial balances

When all entries are posted, a trial balance is prepared:

A trial balance is a list of all accounts with their balances at a point in time.

Trial balances can be prepared at any time (before or after adjusting or closing entries). However, it is considered a good practice to have a trial balance before preparing financial statements because a trial balance shows accounts with their balances. Such information greatly facilitates preparation of financial statements. The trial balance for our example before and after all closing entries is shown below:

Illustration 49: Before closing trial balance for Huske's Consultants

Account Titles

Debit

Credit

Cash

11,100

 

Supplies

100

 

Accounts Receivable

1,100

 

Interest Receivable

100

 

Prepaid Rent

1,000

 

Notes Receivable

3,000

 

Office Equipment

2,000

 

Accumulated Depreciation

 

(800)

Accounts Payable

 

(800)

Salaries Payable

 

(600)

Interest Payable

 

(163)

Notes Payable

 

(4,000)

Unearned Revenue

 

(1,800)

Contributed Capital

 

(10,000)

Distributions

300

 

Consulting Revenue

 

(5,100)

Interest Revenue

 

(100)

Depreciation Expense

800

 

Interest Expense

163

 

Office Maintenance Expense

800

 

Operating Expense

600

 

Rent Expense

1,400

 

Salaries Expense

600

 

Supplies Expense

300

 

Grand Total

23,363

(23,363)

Illustration 4-50: Post closing trial balance for Huske's Consultants

Account Titles

Debit

Credit

Cash

11,100

 

Supplies

100

 

Accounts Receivable

1,100

 

Interest Receivable

100

 

Prepaid Rent

1,000 

 

Notes Receivable

3,000

 

Office Equipment

2,000

 

Accumulated Depreciation

 

(800)

Accounts Payable

 

(800)

Salaries Payable

 

(600)

Interest Payable

 

(163)

Notes Payable

 

(4,000)

Unearned Revenue

 

(1,800)

Contributed Capital

 

(10,000)

Retained Earnings

 

(237)

Grand Total

18,400

(18,400)

6.6. Preparing financial statements (conclusion only)

After the post-closing trial balance is prepared and checked to ensure credit balances equal debit balances, financial statements are prepared. We will skip preparation of financial statements in this tutorial. Note that preparation of financial statements is the final step in the sequence that was started by analyzing source documents.

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