The ledger (general ledger) is the complete collection of all the accounts of a company. Accounts are classified into two categories: (1) balance sheet accounts (assets, liabilities, and capital) and income statement accounts (revenues and expenses). Balance sheet accounts are also called real or permanent accounts. Income statement accounts also called nominal or temporary capital accounts because they are merely subclassifications of the owner's equity accounts. Nominal accounts temporarily contain the revenue and expense information that eventually becomes part of the balance of a real account, owner's capital.
A complete listing of the account title and account numbers of all the accounts in the ledger is known as the chart accounts. The chart of accounts is comparable to a table of contents. Each account has an identification number as well as title to help locate account when recording data. For example, asset accounts might have the number one (1) as the first digit, the liability, accounts with number 2, the capital accounts with number 3, the revenue account with number 4, and the expense account with number 5. The group of accounts usually appear in the following order in the ledger – asset , liabilities, capital, revenues, and expenses – or their financial statement order.
CHART OF ACCOUNTS POSTING
ASSETS REVENUE 11 Cash 41 Service Revenue 12 Accounts Receivable 13 Supplies EXPENSES 14 Prepaid Insurance 15 Prepaid Taxes 51 Salaries Expense 16 Equipment 52 Rent Expense 17 Accumulated Depreciation 53 Taxes Expense 54 Utilities Expense LIABILITIES 55 Supplies Expense 56 Insurance Expense 21 Accounts Payable 57 Depreciation Expense 22 Notes Payable 58 Miscellaneous Expense 23 Salaries Payable CAPITAL 31 Juan dela Cruz, Capital 32 Juan dela Cruz, Drawing 33 Income Summary, Prepaid
A journal entry is like a set instructions. The carrying out of these instructions is known as posting. Posting is recording in the ledger the information contained in the journal . a journal directs the entry of a certain amount as a debit in the specific ledger accountant directs the entry of a certain amount as a credit in a specific ledger account.
In the previous illustration, the first journal entry directs that P20,000 be posted in the ledger as a debit to the Cash account and as a credit to Juan dela Cruz, Capital account. The debit is posted in the general ledger cash account by entering the date (in the same manner as we record it in the journal) on the date column. the page number of the journal from which the entry came is written on the Posting Reference column of the account. The amount of P30,000 is entered in the Debit amount column. then the account number (11) is written in the Posting Reference column of the journal. The credit is posted similarly as a credit to Account No. 31. Posting is always from the journal to the ledger accounts.
Posting may be made (1) at the time the transaction is journalized, (2) at the end of the day, week, or month; (3) as each journal page is filled.
Since it is frequently necessary for accountants to check and trace the origin of their transactions, they provide for cross-indexing. Cross-indexing is the placing of the account number of the ledger account in the general journal and the general journal page number in the ledger account. As shown in the illustration, the account number of the ledger account (11) to which the posting was made is placed in the Posting Reference column of the ledger account.
Cross-indexing aids the tracing of any recorded transactions, either form general journal to the ledger or form ledger to general journal. Cross-reference numbers normally are not placed in the Posting Reference column of the journal until the entry is posted,. If this practice is followed, the cross-reference numbers indicated the entry has been posted. COMPOUND
Many business transactions affect more than two accounts. The journal entry for these transactions will involve more than on debit and/or credit; such and entry is called a compound journal entry. An entry with on debit and one credit is a simple journal entry. All the journal entries illustrated so far have journal as follows:
A trial balance is a list of the accounts with debit or credit balances to determine that debit equals credits in the recording process. The trial balance of Cruz Service Center appears as follows: