Page 85 - Accounting Principles (A Business Perspective)

2. Recording business transactions

The use of ledger accounts

A journal entry is like a set of instructions. The carrying out of these instructions is known as posting. As stated
earlier, posting is recording in the ledger accounts the information contained in the journal. A journal entry directs
the entry of a certain dollar amount as a debit in a specific ledger account and directs the entry of a certain dollar
amount as a credit in a specific ledger account. Earlier, we posted the journal entries for MicroTrain Company to T-
accounts. In practice, however, companies post these journal entries to ledger accounts.
Using a new example, Jenks Company, we illustrate posting to ledger accounts. Later, we show you how to post

the MicroTrain Company journal entries to ledger accounts.
In Exhibit 10, the first journal entry for the Jenks Company directs that USD 10,000 be posted in the ledger as a
debit to the Cash account and as a credit to the Capital Stock account. We post the debit in the general ledger Cash
account by using the following procedure: Enter in the Cash account the date, a short explanation, the journal
designation ("G" for general journal) and the journal page number from which the debit is posted, and the USD
10,000 in the Debit column. Then, enter the number of the account to which the debit is posted in the Posting
Reference column of the general journal. Post the credit in a similar manner but as a credit to Account No. 300. The
arrows in Exhibit 10 show how these amounts were posted to the correct accounts.
Exhibit 10 shows the ledger account. In contrast to the two-sided T-account format shown so far, the three-

column format has columns for debit, credit, and balance. The three-column form has the advantage of showing the
balance of the account after each item has been posted. In addition, in this chapter, we indicate whether each
balance is a debit or a credit. In later chapters and in practice, the nature of the balance is usually not indicated
since it is understood. Also, notice that we give an explanation for each item in the ledger accounts. Often
accountants omit these explanations because each item can be traced back to the general journal for the
explanation.
Posting is always from the journal to the ledger accounts. Postings can be made (1) at the time the transaction is

journalized; (2) at the end of the day, week, or month; or (3) as each journal page is filled. The choice is a matter of
personal taste. When posting the general journal, the date used in the ledger accounts is the date the transaction
was recorded in the journal, not the date the journal entry was posted to the ledger accounts.
Frequently, accountants must check and trace the origin of their transactions, so they provide cross-indexing.
Cross-indexing is the placing of (1) the account number of the ledger account in the general journal and (2) the
general journal page number in the ledger account. As shown in Exhibit 10, the account number of the ledger
account to which the posting was made is in the Posting Reference column of the general journal. Note the arrow
from Account No. 100 in the ledger to the 100 in the Posting Reference column beside the first debit in the general
journal. Accountants place the number of the general journal page from which the entry was posted in the Posting

Reference column of the ledger account. Note the arrow from page 1 in Exhibit 10 the general journal to G1 in the
Posting Reference column of the Cash account in the general ledger. The notation "G1" means general journal, page
1. The date of the transaction also appears in the general ledger. Note the arrows from the date in the general
journal to the dates in the general ledger.

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