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Financial Accounting Basics: Part 3 – Post to the General Ledger

4 mins read

This article is an introduction to Posting to the General Ledger to store all your financial data.

Now that you have created your basic journal entry using double entry accounting the next step in your financial accounting is to post the journal into your “General Ledger.” The general ledger is the place where you store all of your financial data. It contains a complete record of your accounts and journal entries. It used to be a big book of hand written entries but lucky for you technology has created accounting software that treats the general ledger as a central database. So how do we get this journal entry into your general ledger?

You post it to your “Accounts.” Accounts are places where you record, sort and store all financial transactions that affect a related group of items. You need to choose the account when you identify the transaction and prepare the journal entry. When you post a journal entry, you are posting it to the general ledger, which summarizes all journal entries by account.

Broadly speaking there are six different types of accounts: assets, liabilities and equity which we learned about in the accounting equation, and then there is revenue, expenses and withdrawals (also known as dividends) which feed into the equity part of the equation.

This journal entry below affects two accounts and we can picture that by drawing two “T’s,” and labelling them cash and subscription revenue. These are called “T-Accounts,” and they help us visualize what your accounts look like.

Debits go on the left, Credits go on the right.

Debits

  • Always on Left side of a journal entry
  • Increases asset/expense accounts
  • Decreases liability, revenue, equity accounts

Credits

  • Always on the Right side of a journal entry
  • Increases liability, revenue, equity accounts
  • Decreases asset/expense accounts

In the next example there is existing balance in the account or the “Balance Forward (B/F). BIG News already has $12,000 cash and $25,000 in revenue that must be noted in each account.

When you post to this journal (below) you debit the left-hand side of your account by $30,000 and you credit the right hand side of your subscription revenue account by $30,000 as well.

When you total these up you now have $42,000 in cash and have $55,000 in subscription revenue.

But BIG News has other accounts too. It has a whole collection of assets, liabilities, equity, revenue and expense accounts stored in your general ledger.

Now you have created a general ledger that notes all the transactions for a given period under each account. These example T-Accounts only have a single amount on them but the ones you will create will have several debits and credits going back and forth to create a final number in your monthly ledger.

Now you have posted this journal in February when you collected your cash. What about the end of your financial year December 31st? Join us for Part 4 as we examine your un-adjusted trial balance.

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