The procedure of transferring journal entries to the ledger accounts is called posting.
Posting involves the following steps.
1. In the ledger, enter in the appropriate columns of the debited account(s) the date, journal page, and debit amount shown in the journal.
2. In the reference column of the journal, write the account number to which the debit amount was posted.
3. In the ledger, enter in the appropriate columns of the credited account(s) the date, journal page, and credit amount shown in the journal.
4. In the reference column of the journal, write the account number to which the credit amount was posted.
Illustration 3-8 diagrams these four steps, using the first journal entry of Softbyte, Inc. The illustration shows the general ledger accounts in standard account form. Some companies call this form the three-column form of account because it has three money columns—debit, credit, and balance. The balance in the account is determined after each transaction. The explanation space and reference columns provide special information about the transaction. The boxed numbers indicate the sequence of the steps.
The numbers in the “Ref.” column of the general journal refer to the ledger accounts to which a company posts the respective items. For example, the “101” placed in the
2015
Sept.1 Cash
Share Capital — Ordinary (Issued ordinary shares for cash)
Date Account Titles and Explanation GENERAL JOURNAL
Ref. Debit Credit J1
2015 Sept.1
Date Explanation Ref. Debit Credit Balance
No.101 Cash
GENERAL LEDGER
Key: Post to debit account–date, journal page number, and amount.
Enter debit account number in journal reference column.
Post to credit account–date, journal page number, and amount.
Enter credit account number in journal reference column.
No.311
2015 Sept.1
Date Explanation Ref. Debit Credit Balance
Share Capital— Ordinary 2
2
4
4 1
1
3
3
15,000 15,000
J1 15,000 15,000
J1 15,000 15,000 101
311 ILLUSTRATION 3-8
Posting a Journal Entry
The Accounting Cycle 75 column to the right of “Cash” indicates that the company posted this 15,000 item to
Account No. 101 in the ledger.
The posting of the general journal is completed when a company records all of the posting reference numbers opposite the account titles in the journal. Thus, the number in the posting reference column serves two purposes: (1) It indicates the ledger account number of the account involved. (2) It indicates the completion of posting for the par- ticular item. Each company selects its own numbering system for its ledger accounts.
Many begin numbering with asset accounts and then follow with liabilities, equity, revenue, and expense accounts, in that order.
The ledger accounts in Illustration 3-8 show the accounts after completion of the posting process. The reference J1 (General Journal, page 1) indicates the source of the data transferred to the ledger account.
An Expanded Example
To show an expanded example of the basic steps in the recording process, we use the October transactions of Pioneer Advertising Agency Inc. Pioneer’s accounting period is one month. Illustrations 3-9 through 3-18 show the journal entry and posting of each transaction. For simplicity, we use a T-account form instead of the standard account form. Study the transaction analyses carefully.
The purpose of transaction analysis is (1) to identify the type of account involved, and (2) to determine whether a debit or a credit is required. You should always perform this type of analysis before preparing a journal entry. Doing so will help you understand the journal entries discussed in this chapter as well as more complex journal entries in later chapters. Keep in mind that every journal entry affects one or more of the follow- ing items: assets, liabilities, equity, revenues, or expenses.
1. October 1: Shareholders invest 100,000 cash in an advertising venture to be known as Pioneer Advertising Agency Inc.
2. October 1: Pioneer purchases offi ce equipment costing 50,000 by signing a 3-month, 12%, 50,000 note payable.
Journal Entry
Oct. 1, 100,000
Cash 101
Oct. 1, 100,000 Share Capital—Ordinary 311 Posting
Oct. 1 Cash
Share Capital—Ordinary (Issued ordinary shares for cash)
101311 100,000
100,000
ILLUSTRATION 3-9 Investment of Cash by Shareholders
Journal Entry
Oct. 1, 50,000
Equipment 157
Oct. 1, 50,000 Notes Payable 200 Posting
Oct. 1 Equipment Notes Payable
(Issued 3-month, 12% note for office equipment)
157200 50,000 50,000
ILLUSTRATION 3-10 Purchase of Offi ce Equipment
4. October 3: Pioneer pays 9,000 offi ce rent, in cash, for October.
3. October 2: Pioneer receives a 12,000 cash advance from R. Knox, a client, for adver- tising services that are expected to be completed by December 31.
5. October 4: Pioneer pays 6,000 for a one-year insurance policy that will expire next year on September 30.
6. October 5: Pioneer purchases, for 25,000 on account, an estimated 3-month supply of advertising materials from Aero Supply.
7. October 9: Pioneer signs a contract with a local newspaper for advertising inserts (fl yers) to be distributed starting the last Sunday in November. Pioneer will start work on the content of the fl yers in November. Payment of 7,000 is due following delivery of the Sunday papers containing the fl yers.
Journal Entry
Posting Oct. 1 100,000
2 12,000
Cash 101
Oct. 2 12,000 Unearned Service Revenue 209
Oct. 2 101
209 12,000 12,000 Cash Unearned Service Revenue
(Received cash from R. Knox for future service) ILLUSTRATION 3-11
Receipt of Cash for Future Service
Journal Entry
Posting Oct.1 100,000
2 12,000
Cash 101 Rent Expense 729
Oct. 3 Rent Expense Cash
(Paid October rent)
729 101
9,000
9,000
Oct. 3 9,000 Oct. 3 9,000 ILLUSTRATION 3-12
Payment of Monthly Rent
Journal Entry
Posting Oct.1 100,000 Oct. 4 6,000
2 12,000
Oct. 3 9,000 4 6,000
130 101
Cash 101 Prepaid Insurance 130
Oct. 4 Prepaid Insurance Cash
(Paid one-year policy;
effective date October 1)
6,000 6,000 ILLUSTRATION 3-13
Payment for Insurance
Journal Entry
Posting Oct. 5 25,000
Supplies 126
Oct. 5 25,000 Accounts Payable 201 Oct. 5 Supplies
Accounts Payable (Purchased supplies on account from Aero Supply)
126 201
25,000 25,000 ILLUSTRATION 3-14
Purchase of Supplies on Account
The Accounting Cycle 77
8. October 20: Pioneer’s board of directors declares and pays a 5,000 cash dividend to shareholders.
9. October 26: Pioneer pays employee salaries and wages in cash. Employees are paid once a month, every four weeks. The total payroll is 10,000 per week, or 2,000 per day. In October, the pay period began on Monday, October 1. As a result, the pay period ended on Friday, October 26, with salaries and wages of 40,000 being paid.
10. October 31: Pioneer receives 28,000 in cash and bills Copa Company 72,000 for advertising services of 100,000 performed in October.