Post Journal Entries to T-Accounts or Ledger Accounts

Once journal entries are made in the general journal or subsidiary journals, they must be posted and transferred to the T-accounts or ledger accounts. This is the second step in the accounting cycle.

The purpose of journalizing is to record the change in the accounting equation caused by a business event. Ledger accounts categorize these changes or debits and credits into specific accounts, so management can have useful information for budgeting and performance purposes.

Since management uses these ledger accounts, journal entries are posted to the ledger accounts regularly. Most companies have computerized accounting systems that update ledger accounts as soon as the journal entries are input into the accounting software. Manual accounting systems are usually posted weekly or monthly. Just like journalizing, posting entries is done throughout each accounting period.

T-Account

Ledger accounts use the T-account format to display the balances in each account. Each journal entry is transferred from the general journal to the corresponding T-account. The debits are always transferred to the left side and the credits are always transferred to the right side of T-accounts.

Since most accounts will be affected by multiple transactions, there are usually several numbers in both the debit and credit columns. Account balances are always calculated at the bottom of each T-account. Notice that these are account balances—not column balances. The total difference between the debit and credit columns will be displayed on the bottom of the corresponding side. In other words, an account with a credit balance will have a total on the bottom of the right side of the account.

As a refresher of the accounting equation, all asset accounts have debit balances and liability and equity accounts have credit balances. All contra accounts have opposite balances.

Since so many transactions are posted at once, it can be difficult post them all. In order to keep track of transactions, I like to number each journal entry as its debit and credit is added to the T-accounts. This way you can trace each balance back to the journal entry in the general journal if you have any questions later in the accounting cycle.

Example

Let's post the journal entries that Paul's Guitar Shop, Inc. made during the first year in business to the ledger accounts.

Ledger Accounts T-Accounts

Ledger Account Example T-Account Format

Ledger Account Format T-Account Format

Post Ledger Accounts Post T-Accounts

Journal Entry to Ledger Account Journal Entry to T-Account

Sales Ledger Account Sales T-Account

Cash Ledger Account Cash T-Account

Inventory Ledger Account

As you can see, all of the journal entries are posted to their respective T-accounts and the account balances are calculated on the bottom of each ledger account.

Now these ledgers can be used to create an unadjusted trial balance in the next step of the accounting cycle.





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