Double-entry Accounting System
4.5.3 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 usually summarized before posting.
After posting has been made, all debit and credit balances are compared to ensure they balance.
4.5.4 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. An example of a trial balance before and after all closing entries is shown below:
Illustration 4-49: 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 |
1,233 |
|
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 Maint. Expense |
800 |
|
Operating Expense |
600 |
|
Rent Expense |
1,167 |
|
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 |
1,233 |
|
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 |
|
(470) |
Grand Total |
18,633 |
(18,633) |
4.5.5 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 are skipping preparation of financial statements here because we have seen how that is done before. Note that preparation of financial statements is the final step in the sequence that was started by analyzing source documents.
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