Posting from a General Journal to a General Ledger

1 55 TERMS PREVIEW ledgergeneral ledgeraccount numberfile maintenanceopening an accountpostingproving cashcorrecting entryEncore Music records transactions in a General Journal as described inChapter 4. A Journal is a permanent record of the debit and credit partsof each transaction with transactions recorded inchronological order. A Journal does not show, in oneplace, all the changes in a singleaccount. If only a Journal isused, a business mustsearch through all journalpages to find items affect-ing a single accountbalance. For this reason, aform is used to summarizein one place all thechanges to a singleaccount. A separate form isused for each FORMAFTER STUDYING CHAPTER 5, YOU WILL BE ABLE accounting terms related to Posting from a General jour-nal to a General accounting concepts and practices related to postingfrom a General Journal to a General a chart of accounts for a service business organized as amounts from a General Journal to a General cash and journalize correcting from a GeneralJournal to a GeneralLedger94 CHAPTER 5 Posting from a General Journal to a General Ledger95 ACCOUNTINGIN YOUR CAREERTIME FOR POSTINGS hayla Graham is the bookkeeper atHammonds Marketing Services.

2 TonyHammonds, who started the busi-ness, hired her to take full charge ofaccounting, but has never shown a great deal of interest in her daily is now talking with Shayla to dis-cuss ways to free up some time for herto take on additional responsibilities inthe rapidly growing begins, Shayla, you ve done a great job with the accounting system here atHammonds Marketing. I have come to rely on you totally for everything related toaccounts. But now I need to see if we can find some ways for you to do your work in lesstime so you can help me with some other projects. Thank you for the vote of confidence, Tony, Shayla says, I d be happy to work withyou on other projects if we can find a way for me to do so. Well, it looks like there s a lot of duplication in your work.

3 You look at all thedocuments and then prepare some additional ones. Then you record them in the Journal ,and then you record them all again when you post them. You re doing the same thingthree times. Tony, Shayla replies, I promise you I am not creating unnecessary work. Each oneof these steps is an important part of what we call the accounting cycle. And theaccounting firm that audits our books has assured both you and me that I am followingthe correct procedures. Let me explain why each of these steps is important. Critical should Shayla explain the care she takes examining and preparing source documents? would be a good way to explain why both journalizing and Posting are important?96 CHAPTER 5 Posting from a General Journal to a General Ledger5-1 Preparing a Chart of AccountsRELATIONSHIP OF A T ACCOUNT TO AN ACCOUNT FORMAn account form is based on and includesthe debit and credit sides of a T account.

4 In addi-tion to debit and credit columns, space is provided in the account form for recording thetransaction date and Journal page number. Thisinformation can be used to trace a specific entryback to where a transaction is recorded in a major disadvantage of the account formshown is that no current, up-to-date account bal-ance is shown. If this form is used, an up-to-datebalance must be calculated each time theaccount is examined. When an account has alarge number of entries, the balance is difficultand time consuming to calculate. Therefore, amore commonly used account form has Debitand Credit Balance columns as shown the form has columns for the debitand credit balance, it is often referred to as thebalance-ruled account account balance is calculated and recorded as each entry is recorded in theaccount.

5 Recording information in an account isdescribed later in this chapter. The T account is auseful device for analyzing transactions intodebit and credit parts. However, the balance-ruled account form is more useful as apermanent record of changes to accountbalances than is the T Music uses thebalance-ruled needed to trace entry back to Journal pageT AccountDebit sideCredit columnsA group of accounts is called a Aledger that contains all accounts needed toprepare financial statements is called aThe name given to an account isknown as an account title. The number assignedto an account is called an Preparing a Chart of AccountsA list of account titles and numbers showingthe location of each account in a Ledger is knownas a chart of accounts.

6 Encore Music s chart ofaccounts is shown ease of use while studying Cycle 1,Encore Music s chart of accounts is also shownon page in a General Ledger are arranged inthe same order as they appear on financial state-ments. Encore Music s chart of accounts showsfive General Ledger divisions: (1) Assets, (2)Liabilities, (3) Owner s Equity, (4) Revenue, and(5) OF ACCOUNTSE ncore Music CHART OF ACCOUNTSB alance Sheet Accounts(100) ASSETS110 Cash120 Petty Cash130 Accounts Receivable Kids Time140 Accounts Receivable Learn N Play150 Supplies160 Prepaid Insurance(200) LIABILITIES210 Accounts Payable Ling Music Supplies220 Accounts Payable Sullivan Office Supplies(300) OWNER S EQUITY310 Barbara Trevi o, Capital320 Barbara Trevi o, Drawing330 Income SummaryIncome Statement Accounts(400) REVENUE410 Sales(500)

7 EXPENSES510 Advertising Expense520 Insurance Expense530 Miscellaneous Expense540 Rent Expense550 Supplies Expense560 Utilities ExpenseCHAPTER 5 Posting from a General Journal to a General Ledger97 SuppliesGeneral Ledger divisionLocation within General Ledger division150 Encore Music assigns a three-digit accountnumber to each account. For example, Suppliesisassigned the number 150,as shown .The first digit of each account number shows the General Ledger division in which theaccount is located. For example, the assetdivision accounts are numbered in the , the number for the asset account,Supplies,begins with a second two digits indicate the locationof each account within a General Ledger 50in the account number for Suppliesindi-cates that the account is located between accountnumber 140and account number NUMBERSE ncore Music initially assigns account num-bers by 10s so that new accounts can be addedeasily.

8 Nine numbers are unused between eachaccount on Encore Music s chart of accounts. Forexample, numbers 111 to 119 are unusedbetween accounts numbered 110 and 120. Newnumbers can be assigned between existingaccount numbers without renumbering all exist-ing accounts. The procedure for arrangingaccounts in a General Ledger , assigning accountnumbers, and keeping records current is calledUnused account numbers are assigned tonew accounts. Encore Music records paymentsfor gasoline in Miscellaneous o found that the amount paid each monthfor gasoline had become a major expense, shemight decide to use a separate account. Theaccount might be titled Gasoline arranges expense accounts in alphabeticorder in its General Ledger . Therefore, the newaccount would be inserted between Advertising Expense and Insurance Insurance number selected for the new accountshould leave some unused numbers on eitherside of it for other accounts that might need tobe added.

9 The middle, unused account numberbetween existing numbers 510 and 520 is , 515is assigned as the account number for the new for the new an account is no longer needed, it isremoved from the General Ledger and the chartof accounts. For example, if Encore Music wereto buy its own equipment and building, therewould be no need for the rent expense account numbered 540would be removed,and that number would become unused andavailable to assign to another account if the needshould a new account is added at the end of aledger division, the next number in a sequenceof 10s is used. For example, suppose EncoreMusic needs to add another expense account,Water Expense,to show more detail about one ofthe utility expenses. The expense accounts arearranged in alphabetic order.

10 Therefore, the newaccount would be added at the end of theexpense section of the chart of accounts. The lastused expense account number is 560,as shownon the chart of accounts. The next number in thesequence of 10s is 570,which is assigned as thenumber of the new Music has relativelyfew accounts in itsgeneral ledgerand does notanticipate addingmany newaccounts in thefuture. Therefore, athree-digit accountnumber adequatelyprovides for the fewaccount numbersthat might be , as the num-ber of General ledgeraccounts increases, a business maychange to four or more of accounts with morethan three digits are described inlater Expense(Existing account)560 Utilities Expense(Existing account)570 Water Expense(New Account)510 Advertising Expense(Existing account)515 Gasoline Expense (New Account)520 Insurance Expense(Existing account)510 Advertising Expense(Existing account)Gasoline Expense (New Account)520 Insurance Expense(Existing account)