Posting to the Accounting Ledger: The Classifying Phase

The third step in the accounting cycle is to post the journal entries into the ledger.

Posting refers to transferring the entries in the journal into the accounts in the ledger. Posting to the ledger is actually the classifying phase of accounting.

In accounting, ledger refers to a book that consists of all accounts used by the company, the debits and credits to each, and the resulting balance.

While the journal is referred to as Books of Original Entry, the ledger is known as Books of Final Entry.

Example: Posting Process

Let us illustrate how accounting ledgers and the posting process work using the transactions we had in the previous lesson. Click here to see the journal entries we will be using.

Let's start. Take transaction #1 first.

Particulars Debit Credit
Dec 1 Cash 10,000.00  
    Mr. Gray, Capital   10,000.00

Now, go to the ledger and find the accounts. Post the amounts debited and credited to the appropriate side. Debit goes to the left and credit to the right. After posting the amounts, the cash and capital account would look like these:

  Cash   Mr. Gray, Capital  
  10,000.00       10,000.00  

Explanation: First, we posted the entry to Cash. Cash in the journal entry was debited so we placed the amount on the debit side (left side) of the account in the ledger. For Mr. Gray, Capital, it was credited so the amount is placed on the credit side (right side) of the account. And that's it. Posting is simply transferring the amounts from the journal to the accounts in the ledger.

Note: The ledger accounts (or T-accounts) can also have fields for account number, description or particulars, and posting reference.

Let's try to post the second transaction.

  5 Taxes and Licenses 12,000.00  
    Cash   12,000.00

After posting the above entry, the affected accounts in the ledger would look like these:

  Cash   Taxes and Licenses  
  10,000.00 370.00   370.00    

There was a debit to Taxes and Licenses so we posted that in the left side (debit side) of the account. Cash was credited so we posted that on the right side of the account.

Notice that after posting transaction #2, we now can get a more updated balance for each account. Cash now has a balance of $9,630 ($10,000 debit and 370 credit). Nice, right? Post all the other entries and we will be able to get the balances of all the accounts.

General Ledger Example

A general ledger contains accounts that are broad in nature such as Cash, Accounts Receivable, Supplies, and so on. There is another type of ledge which we call subsidiary ledger. It consists of accounts within accounts. Meaning, it contains specific accounts that make up a broad account.

For example, Accounts Receivable may be made up of subsidiary accounts such as Accounts Receivable – Customer A, Accounts Receivable – Customer B, Accounts Receivable – Customer C, etc.

Now – back to the general ledger. In the above discussion, we posted transactions #1 and #2 into the ledger. If we post all 15 transactions (click here to see the entries) and get the balances of each account at the end of the month, the ledger would look like this:

Cash   Accounts Payable   Mr. Gray, Capital
10,000.00 370.00   500.00 8,000.00     10,000.00
1,900.00 3,000.00     1,500.00     3,200.00
3,200.00 8,000.00     9,000.00     13,200.00
4,250.00 500.00          
12,000.00 7,000.00   Loans Payable   Mr. Gray, Drawing
  1,500.00     12,000.00   7,000.00  
            Service Revenue
Accounts Receivable           1,900.00
4,250.00 4,250.00           4,250.00
3,400.00             3,400.00
3,400.00             9,550.00
Service Supplies         Rent Expense
1,500.00           1,500.00  
Furniture and Fixtures         Salaries Expense
3,000.00           3,500.00  
Service Equipment         Taxes and Licenses
16,000.00           370.00  

After all accounts are posted, we can now derive the balances of each account. So how much Cash do we have at the end of the month? As shown in the ledger above, the company has $7,480 at the end of December.

How about accounts receivable? Accounts payable? You have it all in the ledger.

Note: The above is a simplified and theoretical example of a ledger. In the actual business scenario, companies have a lot more than 15 transactions! They may have hundreds or thousands of transactions in one day. Imagine how lengthy the ledger would be in that case. Worse, imagine the work needed in posting that many transactions manually.

However, because of technological advancements most accounting systems today perform automated posting process. Nonetheless, the above example shows how a ledger works.

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