General Ledger Posting
It was already mentioned that from general journal accounting entries are posted to general ledger accounts. This process is called posting to general ledger (G/L). Going back to an example transaction, when one shareholder establishes a company which will provide documents copying services and invests 15000$ cash by opening entity’s bank account and transferring cash into bank account the general journal entry was as indicated below. From general journal each entry is posted to a corresponding general ledger account. In this examples there are two accounts used: cash (assets) and share capital (owner’s equity).
Each general ledger account has a name and number, date of transaction is indicated when posting the entry from general journal. In columns “D” and “C” changes in the account during a particular period are posted and after each change the balance of the account is calculated in the column “Balance” under debit or credit. Each general ledger account is similar to T account. For example in “Cash account No. 11”, which belong to the assets side of accounting equation, increase in cash is depicted under debit side and decrease in cash – under credit side. Balance in cash account must be under debit side. A mistake was made if after calculating a balance in general ledger “Cash account” balance is under credit. In “Share capital account No. 30”, which belongs to the owners’ equity side of accounting equation, increase in share capital is depicted under credit side and decrease in share capital – under debit side. Balance in share capital account must be under credit side. A mistake was made if after calculating a balance in general ledger “Share capital account” balance is under debit side.
Also each general ledger account indicated opening balance of the account at the beginning of the period. In the example below “Cash account” has 0 debit balance at the beginning of June and “Share capital account” has 0 credit balance at the beginning of June.
In this example you can see that 15000$ from general journal was posted to general ledger account “Cash No. 11” in “D” column, as there was an increase in cash upon investment of cash into the company. Balance in this account after this transaction equals to 15000$ under debit side.
Also 15000$ from general journal was posted to general ledger account “Share capital No. 30” in “C” column, as there was an increase in share capital while establishing the company and investing cash into it. This shows that cash belongs to the shareholder. Balance in this account after this transaction equals to 15000$ under credit side.
Coming back to the company Alfa, which transactions were already journalized, next step is to make a posting of those transactions into the general ledger.
1st transaction, June 1, 2007: Establish company to provide copying services and sell stationery. Invest own capital in cash to bank account – 20000$ and take a loan from bank – 15000$. In this transaction three accounts Cash, Loan, Share capital are used. As this is a first transaction all these accounts have 0 balances as of June 1. As Cash account belongs to assets category (left side of accounting equation), the balance of this account is always on the debit side. As Loan account belongs to liabilities category (right side of accounting equation) and Share capital account belongs to owners’ equity category (right side of accounting equation), the balance of these accounts is always on the credit side.
As a result of the 1st transaction there was an increase in cash by 35000$, therefore from general journal this amount is posted to Cash account No. 11 debit turnover column and balance in Cash account after this transaction equals to 35000$ (debit side). Correspondingly share capital increase by 20000$, which is from general journal posted to Share capital account No. 30 credit turnover column and balance in Share capital account after this transaction equals to 20000$ (credit side), loan increased by 15000$, which is from general journal posted to Loan account No. 40 credit turnover column and balance in Loan account after this transaction equals to 15000$ (credit side).
2nd transaction, June 2, 2007: Acquire fixed assets: equipment – 19000$; current assets: inventory (for sale) – 5000$. Part paid in cash – 4000$, remaining part will be paid after 30 days. Four accounts are used in this transaction: Equipment (assets), Inventory (assets), Cash (assets) and Accounts payable (liabilities).
As a result of the 2nd transaction there was an increase in equipment by 19000$. This amount is posted to Equipment account No.17 debit turnover column. Please note that this account is used for the first time, therefore it has 0 debit balance as of June 1. After the transaction is posted, balance in this account equals to 19000$ (debit side, as equipment belongs to assets category on the left side of accounting equation).
Also there was an increase in inventory by 5000$. This amount is posted to Inventory account No.16 debit turnover column. Please note that this account is used for the first time, therefore it has 0 debit balance as of June 1. After the transaction is posted, balance in this account equals to 5000$ (debit side, as inventory belongs to assets category on the left side of accounting equation).
Further there was a decrease in cash by 4000$, as part of the equipment and inventory acquisition price was paid in cash. This amount is posted to Cash account No. 11 credit turnover column. Please note that this account was already used when posting 1st transaction, therefore it already has 35000$ debit balance as of June 2. After the transaction is posted, balance in this account equals to 31000$ (35000-4000, debit side, as cash belongs to assets category on the left side of accounting equation).
The remaining acquisition price of equipment and inventory, i.e. 19000+5000-4000=20000$ will be paid later, therefore Alfa remains liable to suppliers, which results increase in accounts payable – liabilities by 20000$. This amount is posted to Account payable No.41 credit turnover column. Please note that this account is used for the first time, therefore it has 0 credit balance as of June 1. After the transaction is posted, balance in this account equals to 20000$ (credit side, as accounts payable belongs to liabilities category on the right side of accounting equation).
3rd transaction June 3, 2007: Acquire office supplies for cash – 2500$. Two accounts are used in this transaction: Office supplies (assets), Cash (assets).
As a result of the 3rd transaction there was an increase in office supplies by 2500$. This amount is posted to Office supplies account No.15 debit turnover column. Please note that this account is used for the first time, therefore it has 0 debit balance as of June 1. After the transaction is posted, balance in this account equals to 2500$ (debit side, as office supplies belong to assets category on the left side of accounting equation).
Also there was a decrease in cash by 2500$, as office supplies acquisition was paid by cash. This amount is posted to Cash account No. 11 credit turnover column. Please note that this account was already used when posting 1st and 2nd transactions, therefore it already has 31000$ debit balance as of June 3. After the transaction is posted, balance in this account equals to 28500$ (31000-2500, debit side, as cash belongs to assets category on the left side of accounting equation).
4th transaction June 4, 2007: pay in cash for office insurance, period one year – 1500$
Two accounts are used in this transaction: Prepaid expenses (assets), Cash (assets).
As a result of the 4th transaction there was an increase in prepaid expenses by 1500$. This amount is posted to Prepaid expenses account No.10 debit turnover column. Please note that this account is used for the first time, therefore it has 0 debit balance as of June 1. After the transaction is posted, balance in this account equals to 1500$ (debit side, as prepaid expenses belong to assets category on the left side of accounting equation).
Also there was a decrease in cash by 1500$, as prepaid expenses were paid by cash. This amount is posted to Cash account No. 11 credit turnover column. Please note that this account was already used when posting previous transactions, therefore it already has 28500$ debit balance as of June 4. After the transaction is posted, balance in this account equals to 27000$ (28500-1500, debit side, as cash belongs to assets category on the left side of accounting equation).
5th transaction June 5, 2007: Partly pay suppliers for equipment and inventory acquired – 3500$. Two accounts are used in this transaction: Accounts payable (liabilities), Cash (assets).
As a result of the 5th transaction there was a decrease in accounts payable by 3500$. This amount is posted to Accounts payable account No.41 debit turnover column. Please note that this account was already used when posting 2nd transaction, therefore it has 20000$ credit balance as of June 5. After the transaction is posted, balance in this account equals to 16500$ (credit side, as accounts payable belong to liabilities category on the right side of accounting equation).
Also there was a decrease in cash by 3500$, as accounts payable were paid by cash. This amount is posted to Cash account No. 11 credit turnover column. Please note that this account was already used when posting previous transactions, therefore it already has 27000$ debit balance as of June 5. After the transaction is posted, balance in this account equals to 23500$ (27000-3500, debit side, as cash belongs to assets category on the left side of accounting equation).
6th transaction, June 15: Provide copying services to customers – 7000$. 5000$ paid in cash, remaining part will be paid after 30 days. Three accounts are used in this transaction: Cash (assets), Accounts receivable (assets), Income (increase owners’ equity).
As a result of the 6th there was an increase in cash by 500$, as part of income was receive in cash. This amount is posted to Cash account No. 11 debit turnover column. Please note that this account was already used when posting previous transactions, therefore it already has 23500$ debit balance as of June 5. After the transaction is posted, balance in this account equals to 28500$ (23500+5000, debit side, as cash belongs to assets category on the left side of accounting equation).
Also there was an increase in accounts receivable by 2000$ (remaining part of income will be paid later, therefore customer owe Alfa 7000-5000=2000). This amount is posted to Accounts receivable account No.14 debit turnover column. Please note that this account is used for the first time, therefore it has 0 debit balance as of June 1. After the transaction is posted, balance in this account equals to 2000$ (debit side, as accounts receivable belong to assets category on the left side of accounting equation).
Further there was an increase in income by 7000$. This amount is posted to Income account No. 50 credit turnover column. Opening balance of income account is always equal to 0 (the reason will be explained in later stages of accounting cycle). After the transaction is posted, temporary balance in this account equals to 7000$ (credit side, as income belongs to owners’ equity on the right side of accounting equation).
7th transaction, June 19, 2007: Sell all stationery for cash, sales price – 6500$
Four accounts are used in this transaction: Cash (assets), Income (increase owners’ equity), Inventory (assets), Expenses (decrease in owners’ equity).
As a result of the 7th transaction there was an increase in cash by 6500$, as income was receive in cash. This amount is posted to Cash account No. 11 debit turnover column. Please note that this account was already used when posting previous transactions, therefore it already has 28500$ debit balance as of June 15. After the transaction is posted, balance in this account equals to 35000$ (28500+6500, debit side, as cash belongs to assets category on the left side of accounting equation).
Further there was an increase in income by 6500$. This amount is posted to Income account No. 50 credit turnover column. Opening balance of income account is always equal to 0 (the reason will be explained in later stages of accounting cycle). After the previous transaction there are already 7000$ in this account. After this transaction is posted, temporary balance in this account equals to 13500$ (credit side, as income belongs to owners’ equity on the right side of accounting equation).
As all inventory acquired previously was sold, there is a decrease in inventory cost by 5000$ (acquisition price of all inventory). This amount is posted to Inventory account No.16 credit turnover column. Please note that this account was used previously, therefore it has 5000$ debit balance as of June 2. After the transaction is posted, balance in this account equals to 0$ (debit side, as inventory belong to assets category on the left side of accounting equation) and all the inventory was sold.
Cost of inventory sold represents expenses of Alfa. 5000$ (inventory cost) is posted to Expenses account No.60. Opening balance of expenses account is always equal to 0 (the reason will be explained in later stages of accounting cycle). After this transaction is posted, temporary balance in this account equals to 5000$ (debit side, as expenses belongs to owners’ equity on the right side of accounting equation, decreasing owners’ equity).
8th transaction June 21, 2007: Copying services customers paid partly their debt – 1000$. Two accounts are used in this transaction: Cash (assets), Accounts receivable (assets).
As a result of 8th transaction there was an increase in cash by 1000$, as accounts receivable were covered by cash. This amount is posted to Cash account No. 11 debit turnover column. Please note that this account was already used when posting previous transactions, therefore it already has 35000$ debit balance as of June 19. After the transaction is posted, balance in this account equals to 36000$ (36000+1000, debit side, as cash belongs to assets category on the left side of accounting equation).
As a result of the 8th transaction there was a decrease in accounts receivable by 1000$. This amount is posted to Accounts receivable account No.14 debit turnover column. Please note that this account was already used when posting 6th transaction, therefore it has 2000$ debit balance as of June 15. After the transaction is posted, balance in this account equals to 1000$ (debit side, as accounts receivable belong to assets category on the left side of accounting equation).
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