55
TERMS PREVIEW
ledger
general ledger
account number
file maintenance
opening an account
posting
proving cash
correcting entry
Encore Music records transactions in a general journal as described inChapter 4. A journal is a permanent record of the debit and credit partsof each transaction with transactions recorded inchronological order. A journal does not show, in oneplace, all the changes in a singleaccount.
If only a journal isused, a business mustsearch through all journalpages to find items affect-ing a single accountbalance. For this reason, aform is used to summarizein one place all thechanges to a singleaccount. A separate form isused for each account.
ACCOUNT FORM
AFTER STUDYING CHAPTER 5, YOU WILL BE ABLE TO:
1. Define accounting terms related to posting from a general jour-nal to a general ledger.
2. Identify accounting concepts and practices related to postingfrom a general journal to a general ledger.
3. Prepare a chart of accounts for a service business organized as aproprietorship.
4. Post amounts from a general journal to a general ledger.
5. Prove cash and journalize correcting entries.
Posting from a GeneralJournal to a GeneralLedger
94
CHAPTER 5 Posting from a General Journal to a General Ledger 95
ACCOUNTINGIN YOUR CAREER
TIME FOR POSTING
Shayla Graham is the bookkeeper at
Hammonds Marketing Services. Tony
Hammonds, who started the busi-
ness, hired her to take full charge of
accounting, but has never shown a
great deal of interest in her daily work.
Tony is now talking with Shayla to dis-
cuss ways to free up some time for her
to take on additional responsibilities in
the rapidly growing business.
Tony begins, “Shayla, you’ve done a great job with the accounting system here at
Hammonds Marketing. I have come to rely on you totally for everything related to
accounts. But now I need to see if we can find some ways for you to do your work in less
time so you can help me with some other projects.”
“Thank you for the vote of confidence, Tony,” Shayla says, “I’d be happy to work with
you on other projects if we can find a way for me to do so.”
“Well, it looks like there’s a lot of duplication in your work. You look at all the
documents and then prepare some additional ones. Then you record them in the journal,
and then you record them all again when you post them. You’re doing the same thing
three times.”
“Tony,” Shayla replies, “I promise you I am not creating unnecessary work. Each one
of these steps is an important part of what we call the accounting cycle. And the
accounting firm that audits our books has assured both you and me that I am following
the correct procedures. Let me explain why each of these steps is important.”
Critical Thinking:
1. How should Shayla explain the care she takes examining and preparing source documents?
2. What would be a good way to explain why both journalizing and posting are important?
96 CHAPTER 5 Posting from a General Journal to a General Ledger
5-1 Preparing a Chart of Accounts
RELATIONSHIP OF A T ACCOUNT TO AN ACCOUNT FORM
An account form is based on and includesthe debit and credit sides of a T account. In addi-tion to debit and credit columns, space is provided in the account form for recording thetransaction date and journal page number. Thisinformation can be used to trace a specific entryback to where a transaction is recorded in a journal.
The major disadvantage of the account formshown is that no current, up-to-date account bal-ance is shown. If this form is used, an up-to-datebalance must be calculated each time theaccount is examined. When an account has alarge number of entries, the balance is difficultand time consuming to calculate. Therefore, amore commonly used account form has Debitand Credit Balance columns as shown below.
Because the form has columns for the debitand credit balance, it is often referred to as thebalance-ruled account form.
The account balance is calculated and recorded as each entry is recorded in theaccount. Recording information in an account isdescribed later in this chapter. The T account is auseful device for analyzing transactions intodebit and credit parts. However, the balance-ruled account form is more useful as apermanent record of changes to account
balances than is the T account.Encore Music uses thebalance-ruled accountform.
DATE ITEM POST.REF.
ACCOUNT
DEBIT CREDIT
Information needed to trace entry back to journal page
T Account
Debit side Credit side
DATE ITEMBALANCE
DEBIT CREDIT
POST.REF.
ACCOUNT ACCOUNT NO.
DEBIT CREDIT
Balance columns
A group of accounts is called a Aledger that contains all accounts needed toprepare financial statements is called a
The name given to an account isknown as an account title. The number assignedto an account is called an
Preparing a Chart of AccountsA list of account titles and numbers showing
the location of each account in a ledger is known
as a chart of accounts. Encore Music’s chart ofaccounts is shown above.
For ease of use while studying Cycle 1,Encore Music’s chart of accounts is also shownon page 3.
Accounts in a general ledger are arranged inthe same order as they appear on financial state-ments. Encore Music’s chart of accounts showsfive general ledger divisions: (1) Assets, (2)Liabilities, (3) Owner’s Equity, (4) Revenue, and(5) Expenses.
account number.
general ledger.
ledger.
CHART OF ACCOUNTS
Encore Music
CHART OF ACCOUNTS
Balance Sheet Accounts
(100) ASSETS110 Cash120 Petty Cash130 Accounts Receivable—Kids Time140 Accounts Receivable—Learn N Play150 Supplies160 Prepaid Insurance
(200) LIABILITIES210 Accounts Payable—Ling Music Supplies220 Accounts Payable—Sullivan Office Supplies
(300) OWNER’S EQUITY310 Barbara Treviño, Capital320 Barbara Treviño, Drawing330 Income Summary
Income Statement Accounts
(400) REVENUE410 Sales
(500) EXPENSES510 Advertising Expense520 Insurance Expense530 Miscellaneous Expense540 Rent Expense550 Supplies Expense560 Utilities Expense
CHAPTER 5 Posting from a General Journal to a General Ledger 97
Supplies
General ledger division Location within general ledger division
1 5 0
Encore Music assigns a three-digit accountnumber to each account. For example, Supplies isassigned the number 150, as shown .
The first digit of each account number shows the general ledger division in which theaccount is located. For example, the assetdivision accounts are numbered in the 100s.
Therefore, the number for the asset account,Supplies, begins with a 1.
The second two digits indicate the locationof each account within a general ledger division.The 50 in the account number for Supplies indi-cates that the account is located between accountnumber 140 and account number 160.
ACCOUNT NUMBERS
Encore Music initially assigns account num-bers by 10s so that new accounts can be addedeasily. Nine numbers are unused between eachaccount on Encore Music’s chart of accounts. Forexample, numbers 111 to 119 are unusedbetween accounts numbered 110 and 120. Newnumbers can be assigned between existingaccount numbers without renumbering all exist-ing accounts. The procedure for arrangingaccounts in a general ledger, assigning accountnumbers, and keeping records current is called
Unused account numbers are assigned tonew accounts. Encore Music records paymentsfor gasoline in Miscellaneous Expense. If Ms.Treviño found that the amount paid each monthfor gasoline had become a major expense, shemight decide to use a separate account. Theaccount might be titled Gasoline Expense. EncoreMusic arranges expense accounts in alphabeticorder in its general ledger. Therefore, the newaccount would be inserted between Advertising Expense and Insurance Expense.
Expense and Insurance Expense.
The number selected for the new accountshould leave some unused numbers on eitherside of it for other accounts that might need tobe added. The middle, unused account numberbetween existing numbers 510 and 520 is 515.Therefore, 515 is assigned as the account number for the new account.
number for the new account.
When an account is no longer needed, it isremoved from the general ledger and the chartof accounts. For example, if Encore Music wereto buy its own equipment and building, therewould be no need for the rent expense account.The account numbered 540 would be removed,and that number would become unused andavailable to assign to another account if the needshould arise.
When a new account is added at the end of aledger division, the next number in a sequenceof 10s is used. For example, suppose EncoreMusic needs to add another expense account,Water Expense, to show more detail about one ofthe utility expenses. The expense accounts arearranged in alphabetic order. Therefore, the newaccount would be added at the end of theexpense section of the chart of accounts. The lastused expense account number is 560, as shownon the chart of accounts. The next number in thesequence of 10s is 570, which is assigned as thenumber of the new account.
Encore Music has relativelyfew accounts in itsgeneral ledgerand does notanticipate addingmany newaccounts in thefuture. Therefore, athree-digit accountnumber adequatelyprovides for the fewaccount numbersthat might be added.However, as the num-ber of general ledgeraccounts increases, a business maychange to four or more digits.
Charts of accounts with morethan three digits are described inlater chapters.
550 Supplies Expense (Existing account)560 Utilities Expense (Existing account)570 Water Expense (New Account)
510 Advertising Expense (Existing account)515 Gasoline Expense (New Account)520 Insurance Expense (Existing account)
510 Advertising Expense (Existing account)Gasoline Expense (New Account)
520 Insurance Expense (Existing account)
file maintenance.
98 CHAPTER 5 Posting from a General Journal to a General Ledger
Writing an account title and number on theheading of an account is called
A general ledger account is openedfor each account listed on a chart of accounts.Accounts are opened and arranged in a generalledger in the same order as on the chart ofaccounts.
Cash, account number 110, is the firstaccount on Encore Music’s chart of accounts.The cash account is opened using the followingsteps.
The same procedure is used to open allaccounts listed on Encore Music’s chart ofaccounts.an account.
opening
OPENING AN ACCOUNT IN A GENERAL LEDGER
DATE ITEMBALANCE
DEBIT CREDIT
POST.REF.
ACCOUNT ACCOUNT NO.Cash
DEBIT CREDIT
110
1 Account Title 2 Account Number
Opening an account in a general ledger
1. Write the account title, Cash, after the wordAccount in the heading.
2. Write the account number, 110, after thewords Account No. in the heading.
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99
PROFESSIONALBUSINESSETHICS
endra Wheeler applied fora payroll clerk job with theHampton Group, a market
research firm. To improve her chances,she exaggerated her work experienceon her resume.
Based on this resume, Kendra washired. After one year, she receivedabove-average ratings during herannual review. Shortly thereafter, herboss met Kendra’s former supervisorand learned the truth.
InstructionsUse the three-step checklist to help
determine whether or not each actiondemonstrated ethical behavior.(Suggested answers are provided forthis case.)1. Is the action illegal? No.
Overstating qualifications is notillegal, but the employer could ter-minate your employment.
2. Does the action violate companyor professional standards? No.Kendra was neither an employeeof the company nor a member ofany profession.
3. Who is affected, and how, by theaction? Kendra: She obtainedemployment, but now she could beterminated. If retained, she couldhave difficulty being promoted.Other applicants: More highlyqualified applicants lost an oppor-tunity for employment. TheHampton Group: Managers maylose trust in employees.Based on the above analysis,
Kendra’s actions were unethical.
K
CAN I SAY THIS ON MY RESUME?
Preparing a chart of accounts and opening an account
Forms are given in the Working Papers. Your instructor will guide you through the following examples.
Clara Roseman owns a service business called Roseman’s Services, which uses these accounts:Accts. Pay.—Kammerer Supplies Miscellaneous Expense Cash Automobile ExpenseAccts. Rec.—Tyler Cobb Insurance Expense Sales Accts. Pay.—Campbell Office SuppliesPrepaid Insurance Rent Expense SuppliesAccts. Rec.—Amber JorgensonClara Roseman, DrawingClara Roseman, Capital
3. Prepare a chart of accounts. Arrange expense accounts in alphabetical order. Use 3-digitaccount numbers and number the accounts within a division by 10s.
4. Two new accounts, Gasoline Expense and Utilities Expense, are to be added to the chart ofaccounts prepared in Instruction 3. Assign account numbers to the two new accounts.
5. Using the account form in the Working Papers, open Cash.
Preparing a chart of accounts and opening an account
Forms are given in the Working Papers. Work these problems independently.
Eric Yunger owns a service business called Yunger’s Hair Care, which uses these accounts:Accts. Pay.—Otgen Company Supplies Expense Cash Delivery ExpenseAccts. Rec.—Sarych Supplies Insurance Expense Sales Accts. Pay.—North StarPrepaid Insurance Telephone Expense Supplies Accts. Rec.—Jaeson KeeneEric Yunger, Drawing Eric Yunger, Capital
6. Prepare a chart of accounts. Arrange expense accounts in alphabetical order. Use 3-digitaccount numbers and number the accounts within a division by 10s.
7. Two new accounts, Rent Expense and Water Expense, are to be added to the chart of accountsprepared in Instruction 6. Assign account numbers to the two new accounts.
8. Using the account form in the Working Papers, open Delivery Expense.
ledger
general ledger
account number
file maintenance
opening an account
1. Describe the two parts of an account number.
2. List the two steps for opening an account.
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100 CHAPTER 5 Posting from a General Journal to a General Ledger
CHAPTER 5 Posting from a General Journal to a General Ledger 101
Transferring information from a journalentry to a ledger account is called Posting sorts journal entries so that all debitsand credits affecting each account are broughttogether in one place. For example, all changesto Cash are brought together in the cash account.
Each amount in the Debit and Creditcolumns of a general journal is posted to theaccount written in the Account Title column.
The numbers in the Post. Ref. columns of thegeneral ledger account and the general journal
serve three purposes. (1) An entry in an accountcan be traced to its source in a journal. (2) Anentry in a journal can be traced to where it wasposted in an account. (3) If posting isinterrupted, the accounting personnel can easilysee which entries in the general journal still needto be posted. A blank in the Post. Ref. column ofthe journal indicates that posting for that linestill needs to be completed. Therefore, the postingreference is always recorded in the journal as the laststep in the posting procedure.
posting.
POSTING AN AMOUNT FROM THE DEBIT COLUMN OF A GENERAL JOURNAL
GENERAL JOURNAL PAGE 1
1
2
3
4
1
2
3
4
DATE ACCOUNT TITLE DEBIT CREDIT
Aug.20--
1 CashBarbara Treviño, Capital
DOC.NO.
POST.REF.
10 0 0 0 0010 0 0 0 00
R1 110
ACCOUNT NO. 110
DATE ITEMBALANCE
DEBIT CREDIT
Aug. 1 10 0 0 0 00 10 0 0 0 00
POST.REF.
G120--
ACCOUNT Cash
DEBIT CREDIT
1 Date
2
Account Balance
3
5
JournalPage Number
Account Number
Debit Amount
4
5-2 Posting from a General Journal to aGeneral Ledger
Posting an amount from a Debit column of a general journal
1. Write the date, 20—, Aug. 1, in the Date column of the account, Cash.2. Write the journal page number, G1, in the Post. Ref. column of the account. The letter G is an abbreviation
for the general journal. Post. Ref. is an abbreviation for Posting Reference.3. Write the debit amount, $10,000.00, in the Debit amount column of the account.4. Write the new account balance, $10,000.00, in
the Balance Debit column. Because this entry is thefirst in the cash account, the previous balance iszero. The new account balance is calculated asshown.
5. Return to the journal and write the account number, 110, in the Post. Ref. column of the journal.
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$0.00
Debit ColumnAmount
$10,000.00
New DebitBalance
$10,000.00
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n the ancient civilizations ofAsia Minor and northernAfrica, most citizens were
illiterate. The scribe, who could readand write, became a very importantperson in the society. The scribe has been called the forerunner oftoday’s accountant. Most scribesrecorded transactions on moist claytablets that were then dried in the sun.
Another important contribution to
accounting was made by the Greeksaround 630 B.C. The Greeks inventedcoined money, which facilitatedassigning values to transactions.
The Babylonians in Asia Minorused an early form of banking. Theytransferred funds with a system resem-bling our modern-day checkingaccounts.
These early practices provided thefoundation for today’s financial systemand recordkeeping methods.
As stated previously, each amount in theDebit and Credit columns of a general journal isposted to the account written in the Account
Title column. The five steps used to post anamount from the Credit column are describedbelow.
GENERAL JOURNAL PAGE 1
1
2
3
4
1
2
3
4
DATE ACCOUNT TITLE DEBIT CREDIT
Aug.20--
1 CashBarbara Treviño, Capital
DOC.NO.
POST.REF.
10 0 0 0 0010 0 0 0 00
R1 110310
ACCOUNT NO. 310
DATE ITEMBALANCE
DEBIT CREDIT
Aug. 1 10 0 0 0 00 10 0 0 0 00
POST.REF.
G120--
ACCOUNT Barbara Treviño, Capital
DEBIT CREDIT
2
1 Date
Account Balance
3
5
JournalPage Number
Account NumberCredit Amount
2
4
POSTING AN AMOUNT FROM THE CREDIT COLUMN OF A GENERAL JOURNAL
Posting an amount from the Credit column of a general journal
1. Write the date, 20—, Aug. 1, in the Date column of the account, Barbara Treviño, Capital.2. Write the journal page number, G1, in the Post. Ref. column of the account.3. Write the credit amount, $10,000.00, in the Credit amount column of the account.4. Write the new account balance, $10,000.00, in the Balance Credit column. Because this entry is the first in
the capital account, the previous balance is zero.The new account balance is calculated as shown.
5. Return to the journal and write the account number,310, in the Post. Ref. column of the journal.
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$0.00
Credit ColumnAmount
$10,000.00
New CreditBalance
$10,000.00
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CULTURALDIVERSITY
ACCOUNTING IN ANCIENT CIVILIZATIONS
I
102
CHAPTER 5 Posting from a General Journal to a General Ledger 103
GENERAL JOURNAL PAGE 1
7
8
9
10
7
8
9
10
DATE ACCOUNT TITLE DEBIT CREDIT
7
11
SuppliesA/P—Ling Music Supplies
Accounts Payable—Ling Music SuppliesCash
DOC.NO.
POST.REF.
2 7 2 0 00
1 3 6 0 002 7 2 0 00
1 3 6 0 00
M1
C3
150210210
ACCOUNT NO. 150
DATE ITEMBALANCE
DEBIT CREDIT
Aug. 37
1 5 7 7 002 7 2 0 00
1 5 7 7 004 2 9 7 00
POST.REF.
G1G1
20--
ACCOUNT Supplies
DEBIT CREDIT
Date
JournalPage Number
Account Number
Debit Amount
2
ACCOUNT NO. 210
DATE ITEMBALANCE
DEBIT CREDIT
Aug. 711 1 3 6 0 00
2 7 2 0 00 2 7 2 0 001 3 6 0 00
POST.REF.
G1G1
20--
ACCOUNT Accounts Payable—Ling Music Supplies
DEBIT CREDIT
Account Balance
1
4
35
POSTING A DEBIT AMOUNT TO AN ACCOUNT WITH A BALANCE
Posting a debit amount to an account with a debit balance
1. Write the date, 7, in the Date column of the account. The month and the year are written only once on apage of a ledger account unless the month or year changes.
2. Write the journal page number, G1, in the Post. Ref. column of the account.3. Write the debit amount, $2,720.00, in the Debit amount column of the account.4. Write the new balance, $4,297.00, in the Balance
Debit column. When both the previous balance anda newly posted amount are debits, the new balanceis a debit.
5. Return to the journal and write the account number, 150, in the Post. Ref. column of the journal.
Posting a debit amount to an account with a credit balance
1. Write the date, 11, in the Date column of the account.2. Write the journal page number, G1, in the Post. Ref. column of the account.3. Write the debit amount, $1,360.00, in the Debit
amount column of the account.4. Write the new balance, $1,360.00, in the Balance
Credit column. Whenever the credits in an accountexceed the debits, the balance is a credit. Wheneverthe debits in an account exceed the credits, the balance is a debit.
5. Return to the journal and write the account number, 210, in the Post. Ref. column of the journal.
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PreviousBalance
$2,720.00
Debit ColumnAmount$1,360.00
New CreditBalance
$1,360.00
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�
�
PreviousBalance
$1,577.00
Debit ColumnAmount$2,720.00
New DebitBalance
$4,297.00
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Only the first set of fivesteps is shown in the illustra-tion. The second set of fivesteps is similar to the first setof steps.
Page 1 of Encore Music’s August generaljournal, after all posting has been completed, is
shown above. Notice that the Post. Ref. columnis completely filled in with account numbers.
104 CHAPTER 5 Posting from a General Journal to a General Ledger
JOURNAL PAGE WITH POSTING COMPLETED
GENERAL JOURNAL PAGE 1
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DATE ACCOUNT TITLE DEBIT CREDIT
Aug.20--
1
3
4
7
11
12
12
12
12
12
12
13
14
14
17
18
20
CashBarbara Treviño, Capital
SuppliesCash
Prepaid InsuranceCash
SuppliesAccounts Payable—Ling Music Supplies
Accounts Payable—Ling Music SuppliesCash
CashSales
Accounts Receivable—Kids TimeSales
Rent ExpenseCash
Utilities ExpenseCash
CashAccounts Receivable—Kids Time
Barbara Treviño, DrawingCash
Accounts Receivable—Learn N PlaySales
Advertising ExpenseCash
CashSales
Petty CashCash
Advertising ExpenseCash
SuppliesAccounts Payable—Sullivan Office Supplies
DOC.NO.
POST.REF.
10 0 0 0 00
1 5 7 7 00
1 2 0 0 00
2 7 2 0 00
1 3 6 0 00
3 2 5 00
2 0 0 00
2 5 0 00
4 5 00
1 0 0 00
1 0 0 00
2 0 00
6 8 00
1 2 0 00
2 0 0 00
2 0 0 00
2 0 00
10 0 0 0 00
1 5 7 7 00
1 2 0 0 00
2 7 2 0 00
1 3 6 0 00
3 2 5 00
2 0 0 00
2 5 0 00
4 5 00
1 0 0 00
1 0 0 00
2 0 00
6 8 00
1 2 0 00
2 0 0 00
2 0 0 00
2 0 00
R1
C1
C2
M1
C3
T12
S1
C4
C5
R2
C6
S2
C7
T14
C8
C9
M2
110310150110160110150210210110110410130410540110560110110130320110140410510110110410120110510110150220
R E M E M B E RPosting will go smoothly if you consistently follow the five steps of posting. The last step in posting is to put the accountnumber in the Post. Ref. column of the general journal.
Posting to a general ledger
A completed general journal and general ledger accounts are given in the Working Papers. Yourinstructor will guide you through the following example.
Leonard Witkowski owns a service business that uses the following accounts:
Assets Owner’s Equity110 Cash 310 Leonard Witkowski, Capital120 Accounts Receivable—Danielle Braastad 320 Leonard Witkowski, Drawing130 Supplies Revenue140 Prepaid Insurance 410 Sales
Liabilities Expenses210 Accounts Payable—Joshua’s Supplies 510 Rent Expense
3. Post all the entries in the general journal.
Posting to a general ledger
A completed general journal and general ledger accounts are given in the Working Papers. Work thisproblem independently.
Melanie Komoko owns a service business which uses the following accounts:
Assets Owner’s Equity110 Cash 310 Melanie Komoko, Capital120 Accounts Receivable—Brenden Otto 320 Melanie Komoko, Drawing130 Supplies Revenue140 Prepaid Insurance 410 Sales
Liabilities Expenses210 Accounts Payable—Signs Plus 510 Utilities Expense
4. Post all the entries in the general journal.
posting 1. List the five steps of posting from the general journal tothe general ledger.
2. When both debit and credit amounts have been postedto an account, what determines whether the balance is adebit or a credit?
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CHAPTER 5 Posting from a General Journal to a General Ledger 105
106 CHAPTER 5 Posting from a General Journal to a General Ledger
ACCOUNT NO. 110
DATE ITEMBALANCE
DEBIT CREDIT
Aug. 134
111212121212141417182127282828313131
10 0 0 0 00
3 2 5 00
1 0 0 00
1 2 0 00
2 0 4 4 00
1 4 1 2 00
2 9 0 00
1 5 7 7 001 2 0 0 001 3 6 0 00
2 5 0 004 5 00
1 0 0 006 8 00
2 0 0 002 0 0 00
7 0 004 3 4 00
3 001 2 00
5 0 0 00
10 0 0 0 008 4 2 3 007 2 2 3 005 8 6 3 006 1 8 8 005 9 3 8 005 8 9 3 005 9 9 3 005 8 9 3 005 8 2 5 005 9 4 5 005 7 4 5 005 5 4 5 007 5 8 9 007 5 1 9 007 0 8 5 008 4 9 7 008 4 9 4 008 4 8 2 007 9 8 2 008 2 7 2 00
POST.REF.
G1G1G1G1G1G1G1G1G1G1G1G1G1G2G2G2G2G2G2G2G2
20--
ACCOUNT Cash
CREDITDEBIT
ACCOUNT NO. 120
DATE ITEMBALANCE
DEBIT CREDIT
Aug. 17 2 0 0 00 2 0 0 00
POST.REF.
G120--
ACCOUNT Petty Cash
DEBIT CREDIT
1 0 0 00
ACCOUNT NO. 130
DATE ITEMBALANCE
DEBIT CREDIT
Aug. 1212
2 0 0 00 2 0 0 001 0 0 00
POST.REF.
G1G1
20--
ACCOUNT Accounts Receivable—Kids Time
CREDITDEBIT
ACCOUNT NO. 140
DATE ITEMBALANCE
DEBIT CREDIT
Aug. 13 2 0 00 2 0 00
POST.REF.
G120--
ACCOUNT Accounts Receivable—Learn N Play
DEBIT CREDIT
GENERAL LEDGER WITH POSTING COMPLETED
5-3 Gompleted General Ledger, Proving Cash,and Making Correcting Entries
Encore Music’s general ledger, after all posting from theAugust journal iscompleted, is shownhere and on the nextseveral pages.
The use of theaccounts IncomeSummary, InsuranceExpense, and SuppliesExpense is described inChapter 7.
CHAPTER 5 Posting from a General Journal to a General Ledger 107
ACCOUNT NO. 150
DATE ITEMBALANCE
DEBIT CREDIT
Aug.
POST.REF.
20--
ACCOUNT Supplies
DEBIT CREDIT
37
2028
1 5 7 7 002 7 2 0 00
2 0 004 3 4 00
1 5 7 7 004 2 9 7 004 3 1 7 004 7 5 1 00
G1G1G1G2
ACCOUNT NO. 160
DATE ITEMBALANCE
DEBIT CREDIT
Aug. 4 1 2 0 0 00 1 2 0 0 00
POST.REF.
G120--
ACCOUNT Prepaid Insurance
DEBIT CREDIT
ACCOUNT NO. 210
DATE ITEMBALANCE
DEBIT CREDIT
Aug. 711 1 3 6 0 00
2 7 2 0 001 3 6 0 00
POST.REF.
G1G1
20--
ACCOUNT Accounts Payable—Ling Music Supplies
DEBIT CREDIT
2 7 2 0 00
ACCOUNT NO. 220
DATE ITEMBALANCE
DEBIT CREDIT
Aug. 20 2 0 00 2 0 00
POST.REF.
G120--
ACCOUNT Accounts Payable—Sullivan Office Supplies
CREDITDEBIT
ACCOUNT NO. 310
DATE ITEMBALANCE
DEBIT CREDIT
Aug. 1 10 0 0 0 00
POST.REF.
G120--
ACCOUNT Barbara Treviño, Capital
CREDITDEBIT
10 0 0 0 00
ACCOUNT NO. 320
DATE ITEMBALANCE
DEBIT CREDIT
Aug. 1231
1 0 0 005 0 0 00
1 0 0 006 0 0 00
POST.REF.
G1G2
20--
ACCOUNT Barbara Treviño, Drawing
DEBIT CREDIT
ACCOUNT NO. 330
DATE ITEMBALANCE
DEBIT CREDIT
POST.REF.
ACCOUNT Income Summary
DEBIT CREDIT
A General Ledger after Posting Has Been Completed (continued)
ACCOUNT NO. 410
DATE ITEMBALANCE
DEBIT CREDIT
Aug. 12121314212831
3 2 5 002 0 0 00
2 0 001 2 0 00
2 0 4 4 001 4 1 2 00
2 9 0 00
3 2 5 005 2 5 005 4 5 006 6 5 00
2 7 0 9 004 1 2 1 004 4 1 1 00
POST.REF.
G1G1G1G1G2G2G2
20--
ACCOUNT Sales
CREDITDEBIT
6 8 002 6 8 002 7 3 00
ACCOUNT NO. 510
DATE ITEMBALANCE
DEBIT CREDIT
Aug. 141831
POST.REF.
G1G1G2
20--
ACCOUNT Advertising Expense
CREDITDEBIT
6 8 002 0 0 00
5 00
ACCOUNT NO. 520
DATE ITEMBALANCE
DEBIT CREDIT
POST.REF.
ACCOUNT Insurance Expense
DEBIT CREDIT
7 003 00
7 001 0 00
ACCOUNT NO. 530
DATE ITEMBALANCE
DEBIT CREDIT
Aug. 3131
POST.REF.
G1G2
20--
ACCOUNT Miscellaneous Expense
CREDITDEBIT
ACCOUNT NO.
540
DATE ITEMBALANCE
DEBIT CREDIT
Aug. 12 2 5 0 00 2 5 0 00
POST.REF.
G120--
ACCOUNT
Rent Expense
DEBIT CREDIT
ACCOUNT NO. 550
DATE ITEMBALANCE
DEBIT CREDIT
POST.REF.
ACCOUNT Supplies Expense
DEBIT CREDIT
ACCOUNT NO. 560
DATE ITEMBALANCE
DEBIT CREDIT
Aug. 1227
4 5 007 0 00
4 5 001 1 5 00
POST.REF.
G1G2
20--
ACCOUNT Utilities Expense
CREDITDEBIT
108 CHAPTER 5 Posting from a General Journal to a General Ledger
A General Ledger after Posting Has Been Completed (concluded)
CHAPTER 5 Posting from a General Journal to a General Ledger 109
Determining that the amount of cash agreeswith the balance of the cash account in theaccounting records is called Cashcan be proved at any time Encore Music wishesto verify the accuracy of the cash records.However, Encore Music always proves cash at
the end of a month. To prove cash, Encore Musiccompares the cash balance as shown in thecheckbook with the cash balance in the cashaccount. If the two balances equal, cash isproved.
proving cash.
NO. 15 $
Date 20
To
For
BAL. BRO’T. FOR’D. . . . . . . . . . . .
AMT. DEPOSITED . . .
SUBTOTAL . . . . . . . . . . . . . . . . . . .OTHER:
SUBTOTAL: . . . . . . . . . . . . . . . . . .
AMT. THIS CHECK . . . . . . . . . . . .
BAL. CAR’D. FOR’D. . . . . . . . . . . .
Date
--
8,272 00
ACCOUNT NO. 110
DATE ITEMBALANCE
DEBIT CREDIT
31 2 9 0 00 8 2 7 2 00
POST.REF.
G2
ACCOUNT Cash
CREDITDEBIT
MEMORANDUM FOR A CORRECTING ENTRY
Errors can be made even though care istaken in recording transactions. Simple errorsmay be corrected by ruling through the item, asdescribed in Chapter 4. However, a transactionmay have been improperly journalized and posted to the ledger. When an error in a journalentry has already been posted, the incorrect jour-
nal entry should be corrected with an additionaljournal entry. A journal entry made to correct anerror in the ledger is called a
If an accounting error is discovered, a memo-randum is prepared describing the correction tobe made. The source document for a correctingentry is the memorandum.
correcting entry.
530 Anoka AvenueTampa, FL 33601
Encore Music
Signed: Date:
MEMORANDUM No. 45
A cash payment of $120.00 for advertising,October 30, 20--, was debited in error toMiscellaneous Expense.
Barbara Treviño November 13, 20--
PROVING CASH
110 CHAPTER 5 Posting from a General Journal to a General Ledger
November 13. Discovered that a payment ofcash for advertising in October was journalizedand posted in error as a debit to MiscellaneousExpense instead of Advertising Expense,$120.00. Memorandum No. 45.
To correct the error, an entry is made to add$120.00 to the advertising expense account. Theentry must also deduct $120.00 from the miscel-
laneous expense account. The correcting entryincreases the advertising expense accountbalance and decreases the miscellaneous expenseaccount balance.
Because the advertising expense account hasa normal debit balance, Advertising Expense isdebited for $120.00 to show the increase in thisexpense account. The miscellaneous expenseaccount also has a normal debit balance.Therefore, Miscellaneous Expense is credited for$120.00 to show the decrease in this expenseaccount.
The same four steps are followed when mak-ing a correcting entry as when making any jour-nal entry.
JOURNAL ENTRY TO RECORD A CORRECTING ENTRY
PAGE 7
28
29
30
31
28
29
30
31
DATE ACCOUNT TITLE DEBIT CREDIT
13 Advertising ExpenseMiscellaneous Expense
DOC.NO.
POST.REF.
1 2 0 001 2 0 00
M45
GENERAL JOURNAL1 Date
Source Document4
Credit
Debit
3
2
Journalizing a correcting entry
1. Date. Write the date, 13, in the Date column.2. Debit. Write the title of the account debited, Advertising Expense, in the Account Title column. Write the
debit amount, $120.00, in the Debit column.3. Credit. On the next line, indented about 1 centimeter, write the title of the account credited, Miscellaneous
Expense, in the Account Title column. Write the credit amount, $120.00, in the Credit column.4. Source document. On the first line of this entry, write the source document number, M45, in the Doc. No.
column.
S
T
E
P
S
Advertising Expense
120.00
Miscellaneous Expense
120.00
R E M E M B E RTwo zeroes are written in the cents column when an amount is in even dollars, such as $500.00. If the cents column isleft blank, doubts may arise later about the correct amount.
Journalizing correcting entries
A general journal is given in the Working Papers. Your instructor will guide you through the follow-ing example.Transactions: Nov. 1. Discovered that a transaction for office supplies bought last month was journalized and
posted in error as a debit to Prepaid Insurance instead of Supplies, $60.00. M15.1. Discovered that a transaction for rent expense for last month was journalized and posted
in error as a debit to Repair Expense instead of Rent Expense, $550.00. M16.
5. Journalize each correcting entry discovered during November of the current year. Use page 21of the general journal.
Journalizing correcting entries
A general journal is given in the Working Papers. Work this problem independently.Transactions: June 1. Discovered that a transaction for office supplies bought last month was journalized and
posted in error as a debit to Supplies—Store instead of Supplies—Office, $45.00. M23.1. Discovered that a transaction for utilities expense for last month was journalized and
posted in error as a debit to Miscellaneous Expense instead of Utilities Expense,$550.00. M24.
6. Journalize each correcting entry discovered during June of the current year. Use page 11 of thegeneral journal.
proving cash
correcting entry
1. Which two amounts are compared when proving cash?
2. What is a correcting entry?
3. When an amount is journalized and posted to an incor-rect expense account, why is the amount of thecorrecting entry debited to the correct expense account?
4. When an amount is journalized and posted to anincorrect expense account, why is the amount of thecorrecting entry credited to the incorrect expense account?
ERMS REVIEWERMS REVIEWTT UDIT YOUR
UNDERSTANDINGUDIT YOUR UNDERSTANDINGAA
ORK TOGETHERWORK TOGETHERW
N YOUR OWNON YOUR OWNO
CHAPTER 5 Posting from a General Journal to a General Ledger 111
Each company designs itschart of accounts to meet theneeds of that company. EncoreMusic, the company describedin this section of the textbook,has a relatively simple chart ofaccounts, with a small numberof accounts. Therefore, EncoreMusic can use a three-digitaccount number for eachaccount. A company withmore accounts may need to usea four- or five-digit accountnumber for each account. Thenumbering system used by thecompany should ensure thateach account can be assigned aunique number.
When setting up a chart ofaccounts, a company does nothave to use a straight series ofnumbers. If a company hasseveral departments, it maychoose to use account numberssuch as 12-150. The first two
digits (12) can be used to desig-nate a specific department. Thelast three digits (150) identifya unique account within that department. If this companyhas many departments ormany accounts within eachdepartment, it may have toincrease the number of digitsin the account, such as 123-4567.
A large corporation madeup of smaller companies mayhave one chart of accounts forthe entire corporation. If themanagers of the corporationalso want to be able to separateout the accounts for each com-pany, they may choose to set upthe account numbers in an xx-yyy-zzzz format. The first twodigits (xx) would be a uniquenumber for each company, thesecond set of numbers (yyy)refer to a department number,
and the third set of numbers(zzzz) is a unique account.
Another example would bea company that manufacturesgoods for its customers. Such acompany may want to includethe job order number in eachaccount number, so that it caneasily trace the cost of each job.
As you can see, there is aninfinite number of possiblesystems that can be followedwhen assigning account num-bers. A company shouldconsider future growth whenfirst setting up a system so thatit can avoid having to renum-ber accounts at a later date.
Group Activity:Develop a chart of accounts foran imaginary business. Write adetailed description of thecompany and a rationale forthe account numbering systemyou have developed.
e x p l o r e a c c o u n t i n g
After completing this chapter, you can
1. Define important accounting terms related to posting from a generaljournal to a general ledger.
2. Identify accounting concepts and practices related to posting from ageneral journal to a general ledger.
3. Prepare a chart of accounts for a service business organized as a pro-prietorship.
4. Post amounts from a general journal to a general ledger.
5. Prove cash and journalize correcting entries.
C H A P T E R
S U M M A R Y
5
112 CHAPTER 5 Posting from a General Journal to a General Ledger
CHAPTER 5 Posting from a General Journal to a General Ledger 113
APPLICATION PROBLEMPreparing a chart of accounts and opening an account
Lillian Deters owns a service business called Deters Duplicating, which uses the following accounts:
Accounts Receivable—Teegan Walters Lillian Deters, Capital Postage Expense SuppliesAccounts Receivable—Austin Kirnyczuk Lillian Deters, Drawing Charitable Expense SalesAccounts Payable—Dakota Company Prepaid Insurance Rent Expense CashAccounts Payable—Falls Supply Advertising Expense
Instructions:1. Prepare a chart of accounts similar to the one described in this chapter. Arrange expense accounts in
alphabetical order. Use 3-digit account numbers and number the accounts within a division by 10s.2. Two new accounts, Delivery Expense and Telephone Expense, are to be added to the chart of accounts
prepared in Instruction 1. Assign account numbers to the two new accounts.3. Using the account forms in the Working Papers, open the Prepaid Insurance and the Postage Expense
accounts.
APPLICATION PROBLEMPosting to a general ledger
A completed general journal and general ledger accounts are given in the Working Papers.Michael Byrum owns a service business which uses the following accounts:
Assets Owner’s Equity110 Cash 310 Michael Byrum, Capital120 Accounts Receivable—Cheri Frank 320 Michael Byrum, Drawing130 Supplies Revenue140 Prepaid Insurance 410 Sales
Liabilities Expenses210 Accounts Payable—Golden Gate Supply 510 Advertising Expense
Instructions:1. Post all entries in the general journal.2. Prove cash. The balance on the next unused check stub is $1,638.00.
APPLICATION PROBLEMJournalizing correcting entries
The following errors were discovered after the incorrect entries were already journalized and posted.Transactions:Feb. 1. Discovered that a transaction for advertising expense was journalized and posted in error as a
debit to Miscellaneous Expense instead of Advertising Expense, $135.00. M87.5. Discovered that a cash withdrawal by Gregg Moen, owner, was journalized and posted in error
as a credit to Sales instead of Cash, $550.00. M88.8. Discovered that a check received on account was journalized and posted in error as a credit to
Accounts Receivable—Carol Jussila instead of Accounts Receivable—Cindy Joelson, $278.00.M90.
Instructions:Journalize each correcting entry discovered during February of the current year. Use page 3 of a generaljournal given in the Working Papers.
5-1
5-2
5-3
MASTERY PROBLEMJournalizing transactions and posting to a general ledger
Allan Derner owns a service business called Derner Cleaning. Derner Cleaning’s general ledger accountsare given in the Working Papers.Transactions:Nov. 1. Received cash from owner as an investment, $7,000.00. R1.
3. Paid cash for rent, $300.00. C1.5. Sold services on account to Alphonse Gutenberg, $180.00. S1.6. Received cash from sales, $750.00. T6.9. Paid cash for miscellaneous expense, $5.00. C2.
11. Paid cash for supplies, $500.00. C3.13. Bought supplies on account from Major Supplies, $600.00. M1.13. Received cash from sales, $700.00. T13.16. Paid cash for electric bill, $40.00. C4.18. Paid cash on account to Major Supplies, $300.00. C5.20. Paid cash for advertising, $30.00. C6.20. Received cash on account from Alphonse Gutenberg, $90.00. R2.25. Paid cash for supplies, $150.00. C7.27. Paid cash for supplies, $100.00. C8.27. Received cash from sales, $1,800.00. T27.30. Paid cash to owner for personal use, $300.00. C9.30. Received cash from sales, $410.00. T30.
Instructions:1. Open an account for Utilities Expense. Use the 3-digit numbering system described in the chapter.2. Journalize the transactions completed during November of the current year. Use page 1 of a general
journal. Source documents are abbreviated as follows: check, C; memorandum, M; receipt, R; salesinvoice, S; calculator tape, T.
3. Post from the general journal to the general ledger.4. Prove cash. The balance on the next unused check stub is $9,025.00.
CHALLENGE PROBLEMPosting using a variation of the general journal
Nathan Jackson owns a service business called HouseCare. HouseCare uses a general journal that is dif-ferent from the general journal used in this chapter. HouseCare’s March general journal and generalledger accounts (before posting) are given in the Working Papers.Instructions:1. Post from the general journal to the general ledger.2. Prove cash. The balance on the next unused check stub is $9,875.00.
114 CHAPTER 5 Posting from a General Journal to a General Ledger
5-4
5-5
CHAPTER 5 Posting from a General Journal to a General Ledger 115
Janna Sturm does not use a general journal in her business records. She records thedebits and credits for each transaction directly in the general ledger accounts. Is Ms. Sturm using the correct procedure? Explain your answer.
Trent Marvets does the accounting work for his business. When posting, he firsttransfers all of the information to the general ledger accounts. Then he returns tothe general journal and, all at one time, writes the account numbers in the Post.
Ref. column of the journal. Diana Young also does the accounting work for her business.When posting, she writes all the account numbers in the Post. Ref. column of the generaljournal before she transfers any information to the accounts. Is Mr. Marvets or Ms. Youngfollowing the correct procedure? Explain your answer.
INTERNET ACTIVITY
Applied CommunicationA fax machine allows a business to send documents
anywhere in a matter of minutes using a telephone line.Most fax machines in offices are located in one or morecentral locations and used by a number of differentworkers for both sending and receiving documents. Tofacilitate directing the document to the intendedreceiver, it is usual practice to include a cover sheetin the fax transmission. The cover sheet should includethe information below:1. Names of the person sending the message and the
person to receive the message.2. Phone number of both sending and receiving fax
machines.3. Total number of pages being transmitted, including
the cover sheet.Instructions:1. Write a memorandum responding to the following
scenario: Barbara Treviño is at the bank, applyingfor a business loan. Ms. Treviño has just calledyou and asked that you fax her with the followinginformation: Encore Music’s asset, liability,owner’s equity, sales, and expense accounts, andtheir current balances. In your memorandum,include an introductory sentence or paragraph andend with a concluding statement.
2. Prepare a cover sheet for transmitting a faxmessage. The bank’s fax machine telephone numberis 800-555-3333. Use your own name and personaltelephone number or school telephone number.
Point your browser to
http://accounting.swpco.com
Choose First-Year Course, chooseActivities, and complete the activity
for Chapter 5.
116 CHAPTER 5 Posting from a General Journal to a General Ledger
A group of accounts iscalled a ledger. A ledger thatcontains all accounts needed toprepare financial statements iscalled a general ledger. Eachaccount is assigned a title and anumber to be used in a manualas well as an automatedaccounting system.
Creating a Chart ofAccounts
The automated accountingsystem includes a chart ofaccounts, which includes a listof account titles and numbersshowing the location of eachaccount in a ledger. The chartof accounts can be created orchanged by clicking the Accts.toolbar button. Next, click onthe Accounts tab to access theChart of Accounts maintenancescreen. Accounts can be addedor deleted on this screen.Adding a new account wouldbe considered opening anaccount, just as deleting anaccount would be consideredremoving an account.
Chart of AccountsMaintenance
It is important to keep abusiness’s chart of accounts upto date. This process of addingnew accounts, changing titles ofexisting accounts, and deletingaccounts is called filemaintenance or account mainte-nance. The AccountMaintenance screen will appearwhen you choose the Maintain
Accounts menu item from theData drop-down list or click onthe Accts. toolbar button.
Adding a New Account1. Enter the account number in
the Account column at theend of the list, then hit theTab key.
2. Enter the title for the newaccount.
3. For a departmentalizedbusiness, enter thedepartment number.
4. Click the Add Account but-ton.
5. Click the Close button to exitthe Accounts window.
Changing an Account Title1. Select the account that you
wish to change.2. Enter the correct account title
or department number.3. Click the Change button
when the account title hasbeen changed.The account number cannot
be changed. If an account num-ber needs to be changedbecause of an incorrect accountnumber, the account must bedeleted, then added as a newaccount number.
Deleting an Account 1. Select the account that you
wish to delete.2. Click the Delete button.
General ledger accountscannot be deleted unless theaccount has a zero balance.
3. Click the OK button.
General LedgerAccount Numbers
As described in Chapter 5,general ledger accounts areassigned a number based on adivision. The first digit of eachaccount number shows the gen-eral ledger division in which theaccount is located. The otherdigits indicate the location ofeach account within a generalledger division. Every businesssets up its general ledger differ-ently, but the concept is gener-ally the same.
Posting Amounts to theGeneral Ledger
Posting journal entries to thegeneral ledger is done automat-ically in automated accounting.For example, all changes incash are brought together intothe cash account. When trans-actions are entered into a jour-nal, the debit and creditamounts are automaticallytransferred to the general ledgeraccounts. Accounts with debitbalances are increased by debitentries to the account, andaccounts with credit balancesare increased by credit entriesto the account.
Every entry that is made tothe journal includes the date,reference, account number, andthe debit or credit entry. This isthe information that istransferred to the general andsubsidiary ledgers, updating the accounts immediately. Seethe illustration of a general
AUTOMATED ACCOUNTINGAUTOMATED GENERAL LEDGER ACCOUNTING
CHAPTER 5 Posting from a General Journal to a General Ledger 117
ledger report with the postingcompleted.
AUTOMATING APPLICATION PROBLEM5-1: Preparing a chartof accounts andopening an accountInstructions:1. Load Automated Accounting
7.0 or higher software.2. Select database F05-1 from
the appropriate directory/folder.
3. Select File from the menubar and choose the Save Asmenu command. Key thepath to the drive and direc-tory that contains your datafiles. Save the database witha file name of XXX051
(where XXX are yourinitials).
4. Access Problem Instructionsthrough the Help menu (7.0)or Browser tool (8.0). Readthe Problem Instructionsscreen.
5. Refer to page 119 for dataused in this problem.
6. Exit the AutomatedAccounting software.
AUTOMATING MASTERYPROBLEM 5-5:Journalizingtransactions andposting to a generalledgerInstructions:1. Load Automated Accounting
7.0 or higher software.
2. Select database F05-2 fromthe appropriate directory/folder.
3. Select File from the menubar and choose the Save Asmenu command. Key thepath to the drive and direc-tory that contains your datafiles. Save the database witha file name of XXX052(where XXX are yourinitials).
4. Access Problem Instructionsthrough the Help menu (7.0)or Browser tool (8.0). Readthe Problem Instructionsscreen.
5. Key the transactions listedon page 120.
6. Exit the AutomatedAccounting software.
AUTOMATED ACCOUNTING