Chapter 5: Posting to the General Ledger

Once a business has recorded their journal entries in the general journal, they then need to record those transactions in the general ledger. The general journal is considered the original book of entry, whereas the general ledger is considered the final book of entry. Journal entries do not provide a clear picture of how a business transaction changes an account's balance, which is why those transactions get categorized in the ledger. This process of transferring the transactions from the general journal into the ledger accounts is called posting. As seen below, the general ledger form includes the following information:

• 1. Account name and number: within the general ledger each account is listed in numerical order, starting with the assets, then liabilities, capital, withdrawals, revenue and expenses

  2. Description: a majority of the time, this is left blank

  3. Post Ref: This is where the general journal page number is recorded

  4. First Debit/Credit columns: this is where the journal entry is recorded - if the journal debited the account, then you record the debit in the first debit column (see example below)

  5. Balance - Debit/Credit columns: for each account, the final balance after each journal entry is recorded on the normal balance side. For any asset account, regardless of whether there was a journal entry posted as a debit or credit, the accumulative balance gets recorded as a debit.  

In the example below, Maria Sanchez recorded a journal entry in her general journal that effected both her cash in bank account (101) and Maria Sanchez, Capital (301):

The fifth step in the accounting cycle is to create a Trial Balance. A trial balance is a report used to prove the equality of the debits and credits for the accounts of a business. This process is also known as proving the ledger.

As seen in the example below, each trial balance has a header of information that includes the company name, the report name, and the period-ending date that the report represents. Just as with the general ledger, the accounts are listed in numerical order, with their account numbers listed in the far left column, followed by the account name in the next column. Then the final balance for each account is listed under their normal balance side. Again, the purpose of the trial balance is to check the equality of the debits and credits of the business, which you can see at the bottom of the example trial balance below.

If a business does not show an equality of debits and credits, this means that an error occurred when recording one or multiple journal entries. Now that all businesses have moved to using some form of accounting software, simple number entry errors are no longer a concern. With entering journals by hand into the general journal, the following errors may occur:

• • Slide Error - moving the decimal point by mistake (EX: $2,500 instead of $25,000)

  • Transposition Error - two numbers are reversed (EX: $465 instead of $456)

The only way to truly catch these errors when recording transactions by hand, is if a debit was recorded for a separate amount than the credit, and vice versa. If both the debit and the credit are incorrect, but still recorded with the same number, then the trial balance will still show an equal balance. This is why it is extremely important to have quality controls within any finance department. Within current accounting teams, a majority of managers double check their accounting team members' work, and the supporting documents to their journal entry to ensure that the correct amount has been entered. Once validated, then the manager takes on the responsibility of posting the journal entry to the general ledger. 

In the situation where a journal entry is entered incorrectly, and the posting process has already taken place, then a correcting entry must be recorded.