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Posting journal entries to ledger accounts.
THE ACCOUNTING CYCLE
1. • Recording transactions in a journal.
2. • Posting journal entries to ledger accounts.
3. • Preparing a trial balance.
4. • Journalizing and posting adjusting entries.
5. • Preparing an adjusted trial balance.
6. • Preparing financial statements.
7. • Journalizing and posting closing entries.
Bookkeeping and Accounting Cycle
Bookkeeping and Accounting Cycle
Bookkeeping Steps 1.
Record transaction in a journal. 2.
Transfer amounts from various journals to general ledger. Also called 'posting.'
3.
Calculate whether sum of all debit balances equals sum of all credit balances. Also called 'trial balance.'
Accounting Steps 4.
Calculate adjustments. 5.
Prepare adjusted trial balance. 6.
Prepare financial statements. 7.
Close noncumulative accounts.
RECORDING OF THE TRANSACTIONS
Book keeping is defined as the science and art of systematically and correctly recording of all transactions which involve the transfer of money or moneys worth. The systematic book keeping enables us to find out accurately the result of business transactions during particular period. It shows the financial position of business firm at any time clearly and correctly.
The recording of the transactions in the books of account is the first stage in the accounting process.
RULES FOR ENTERING TRANSACTIONS
• The following rules regulate the entering of transactions in ledger accounts:
Asset accounts:
• 1. Increases are entered as left-side or debit entries.
• 2. Decreases are entered as right-side or credit entries.
Equity accounts (both liabilities and owners' equity):
• 1. Decreases are entered as left-side or debit entries.
• 2. Increases are entered as right-side or credit entries.
ACCOUNTING TRANSACTIONS
Accounting transactions are those financial activities and events involving the business entity that cause a measurable change in asset or equity accounts.
Debit 1. Records increases in assets. 2. Records decreases in liabilities. 3. Records decreases in owners' equity.
Credit 1. Records decreases in assets.
2. Records increases in liabilities. 3. Records increases in owners'
equity
Classification of the accounting transactions
Accounting transactions
External transactions
The former consists of exchanges between the business entity and an external party:
purchasing merchandise, borrowing money from a bank, and incurring a liability for labor
services received
Internal transactions
Changes in assets and equities that do not involve an outside party: Depreciation
(the using up of the service potential of plant assets) and the gradual expiration of
prepaid insurance
Journal Entries
After a transaction occurs and a source document is generated, the
transaction is analyzed and entries are made in the general journal.
A journal is a chronological listing of the firm's transactions, including
the amounts, accounts that are affected, and in which direction the
accounts are affected. A journal entry takes the following format:
• Format of a Simple General Journal Entry
• In addition to this information, a journal entry may include a short notation that describes the transaction.
Date Accounts Credit
mm/dd account to be debited
account to be credited xxxx.xx
Journal Entries
• Sometimes, more than two accounts are affected by a transaction
so more than two lines are required. Such a journal entry is know
as a compound journal entry and takes the following format:
• Format of a Compound General Journal Entry
Date Accounts Debit Credit
mm/dd account to be debited xxxx.xx
account to be credited xxxx.xx
account to be credited xxxx.xx
POSTING Posting is an accounting procedure that transcribes the component parts of a journal entry from the journal to appropriate ledger accounts.
Posting is strictly a transfer process and does not alter the accounting entry.
The posting procedure takes the date, the account, the amount, and the debit or credit information from the journal and inserts this information in the proper ledger accounts.
From Journal Entry to Ledger Posting
• Once the source document is generated and the appropriate journal entry is made, the next step in the accounting cycle is to post the entry to the general ledger.
• The ledger accounts comprise the heart of all accounting systems. Ultimately, all accounting changes are entered in them.
Journals and ledger accounts are the two technical devices used in the recording process.
Journal
contains a chronological analysis of specific business transactions recorded
intact and accompanied by explanatory information.
Through the posting process, the debit and credit elements of journal entries are transferred to the ledger, where they are organized by account
classification.
General ledger
is a collection of summarizing devices called "accounts." A separate ledger account is established for each asset,
each liability, and each element of owners' equity.
The individual accounts serve as the mechanical media for recording
increases, decreases, and resulting balances for each item in the
accounting equation.
Difference between Journal and Ledger
S.No. Journal Ledger
1 It is the book of original entry It is the book of secondary entry.
2 It is the book for chronological record i.e. the transactions are recorded as and when they take place
It is the book for analytical record i.e. all the transactions relating to a particular account are recorded in order of their occurrence.
3 Balancing is not done. All the accounts are balanced.
4 From the books of original entry, the entries are transferred to the ledger.
From the ledger, the That balance is drawn and then financial statements are prepared from it.
5 The process of recording entries in the journal is called ‘Journalising’.
The process of recording entries in the ledger is called ‘Posting’.
6 In journal, there is one column for particulars and two columns for amount one for debit and another for credit.
In ledger, there are two equally divided sides having identical columns. The left side is known as debit side and the right side is known as credit.
7 The unit of classification of data within the journal is the transaction.
The unit of classification of data within the ledger is the account.
General ledger
General ledger consists of a compilation of the transaction data by account. Through a process called posting the data is transferred from the general journal to the general ledger. The ledger may take the form of a loose-leaf book with one or more pages allocated to each account, a tray of unit-record (punch) cards, or a computer printout derived from data stored on magnetic tape or disks.
Data Balance Column Account F* Debit Credit Balance
Account__Title:___________________________Account*:___________
* The F (folio) column is used to record the page number of the journal represented by the transaction.