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:

Date	Transaction
Jan 2	An amount of $6,000 was paid as Rent for three months.
Jan 3	Paid $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 4	Purchased office supplies costing $17,600 on account.
Jan 13	Provided services to its customers and received $28,500 in cash.
Jan 13	Paid the accounts payable on the office supplies purchased on January 4.
Jan 14	Paid wages to its employees for the first two weeks of January, aggregating $19,100.
Jan 18	Provided $54,100 worth of services to its customers. They paid $32,900 and promised to pay the remaining amount.
Jan 23	Received $15,300 from customers for the services provided on January 18.
Jan 25	Received $40,000 as an advance payment from customers.
Jan 26	Purchased office supplies costing $5,200 on account.
Jan 28	Paid wages to its employees for the third and fourth week of January: $19,100.
Jan 31	Paid $5,000 as dividends.
Jan 31	Received an electricity bill of $2,470.
Jan 31	Received a telephone bill of $1,494.
Jan 31	Miscellaneous expenses paid during the month totaled $3,470

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

Date	Account	Debit	Credit
Jan 1	Cash	100,000
	Common Stock		100,000
Jan 2	Rent	6,000
	Cash		6,000
Jan 3	Equipment	80,000
	Cash		60,000
	Notes Payable		20,000
Jan 4	Office Supplies	17,600
	Accounts Payable		17,600
Jan 13	Cash	28,500
	Service Revenue		28,500
Jan 13	Accounts Payable	17,600
	Cash		17,600
Jan 14	Wages Expense	19,100
	Cash		19,100
Jan 18	Cash	32,900
	Accounts Receivable	21,200
	Service Revenue		54,100
Jan 23	Cash	15,300
	Accounts Receivable		15,300
Jan 25	Cash	40,000
	Unearned Revenue		40,000
Jan 26	Office Supplies	5,200
	Accounts Payable		5,200
Jan 28	Wages Expense	19,100
	Cash		19,100
Jan 31	Dividends	5,000
	Cash		5,000
Jan 31	Electricity Expense	2,470
	Utilities Payable		2,470
Jan 31	Telephone Expense	1,494
	Utilities Payable		1,494
Jan 31	Miscellaneous Expense	3,470
	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	$6,000		$21,200	$15,300
28,500	60,000
32,900	17,600
15,300	19,100
40,000	19,100
	5,000
	3,470
$86,430			$5,900

Office Supplies			Rent
$17,600			$6,000
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.