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Posting Journal Entries to Ledger Accounts

 

Businesspro entries Example

Company A was incorporated on January 1, 20X0 with an initial capital of 5,000 shares of common stock having $20 par value. During the first month of its operations, the company engaged in the following transactions:

DateTransaction
Jan 2An amount of $36,000 was paid as advance rent for three months.
Jan 3Paid $60,000 cash on the purchase of equipment costing $80,000. The remaining amount was recognized as a one year note payable with an interest rate of 9%.
Jan 4Purchased office supplies costing $17,600 on account.
Jan 13Provided services to its customers and received $28,500 in cash.
Jan 13Paid the accounts payable on the office supplies purchased on January 4.
Jan 14Paid wages to its employees for the first two weeks of January, aggregating $19,100.
Jan 18Provided $54,100 worth of services to its customers. They paid $32,900 and promised to pay the remaining amount.
Jan 23Received $15,300 from customers for the services provided on January 18.
Jan 25Received $40,000 as an advance payment from customers.
Jan 26Purchased office supplies costing $5,200 on account.
Jan 28Paid wages to its employees for the third and fourth week of January: $19,100.
Jan 31Paid $5,000 as dividends.
Jan 31Received an electricity bill of $2,470.
Jan 31Received a telephone bill of $1,494.
Jan 31Miscellaneous expenses paid during the month totaled $3,470

The following table shows the journal entries for the above transactions.

DateAccountDebitCredit
Jan 1Cash100,000 
 Common Stock 100,000
Jan 2Prepaid Rent36,000 
 Cash 36,000
Jan 3Equipment80,000 
 Cash 60,000
 Notes Payable 20,000
Jan 4Office Supplies17,600 
 Accounts Payable 17,600
Jan 13Cash28,500 
 Service Revenue 28,500
Jan 13Accounts Payable17,600 
 Cash 17,600
Jan 14Wages Expense19,100 
 Cash 19,100
Jan 18Cash32,900 
 Accounts Receivable21,200 
 Service Revenue 54,100
Jan 23Cash15,300 
 Accounts Receivable 15,300
Jan 25Cash40,000 
 Unearned Revenue 40,000
Jan 26Office Supplies5,200 
 Accounts Payable 5,200
Jan 28Wages Expense19,100 
 Cash 19,100
Jan 31Dividends5,000 
 Cash 5,000
Jan 31Electricity Expense2,470 
 Utilities Payable 2,470
Jan 31Telephone Expense1,494 
 Utilities Payable 1,494
Jan 31Miscellaneous Expense3,470 
 Cash 3,470

The second step of accounting cycle is to post the journal entries to the ledger accounts.

The journal entries recorded during the first step provide information about which accounts are to be debited and which to be credited and also the magnitude of the debit or credit see debit-credit-rules. The debit and credit values of journal entries are transferred to ledger accounts one by one in such a way that debit amount of a journal entry is transferred to the debit side of the relevant ledger account and the credit amount is transferred to the credit side of the relevant ledger account.

After posting all the journal entries, the balance of each account is calculated. The balance of an asset, expense, contra-liability and contra-equity account is calculated by subtracting the sum of its credit side from the sum of its debit side. The balance of a liability, equity and contra-asset account is calculated the opposite way i.e. by subtracting the sum of its debit side from the sum of its credit side.

Example

The ledger accounts shown below are derived from the journal entries of  XYZ COMPANY.

Asset Accounts

Cash Accounts Receivable
$100,000$36,000 $21,200$15,300
28,50060,000   
32,90017,600   
15,30019,100   
40,00019,100   
 5,000   
 3,470   
$56,430  $5,900 
Office Supplies Prepaid Rent
$17,600  $36,000 
5,200    
$22,800  $36,000 
Equipment
$80,000 
$80,000 

Liability Accounts

Accounts Payable Notes Payable
$17,600$17,600  $20,000
 5,200   
 $5,200  $20,000
Utilities Payable Unearned Revenue
 $2,470  $40,000
 1,494   
 $3,964  $40,000

Equity Accounts

Common Stock
 $100,000
 $100,000

Revenue, Dividend and Expense Accounts

Service Revenue Dividend
 $28,500 $5,000 
 54,100   
 $82,600 $5,000 
Wages Expense Miscellaneous Expense
 $19,100  $3,470 
19,100    
$38,200  $3,470 
Electricity Expense Telephone Expense
$2,470  $1,494 
$2,470  $1,494 

The ledger accounts step of accounting cycle completes here. The next step is the preparation of unadjusted trial balance.