When a Journal Entry is made to record a transaction, that Journal Entry is then entered (posted) in the accounts being impacted. For example, when rent is paid, in the journal entry Rent Expense is increased and Cash is decreased. The individual accounts each (like Rent Expense and Cash) have a Ledger where transactions are entered. Individual transactions are entered and a running balance is tracked.
A Ledger is a collection of accounts used to post journal transactions to individual accounts. Here is an example of a ledger:
For a clearer understanding of the difference between a Journal and a Ledger, watch this video:
The Journal Entries are entered line by line into the Ledger and the balances are updated after each transaction.
In the Ledger, this transaction is posted as a debit to Cash and a credit to Joe Smith, Capital. It looks like this:
The Item column is left blank when posting regular transactions. The Item column is only used for notating the following types of transactions being posted:
The Balance column in the General Ledger is used to keep a running balance in each account. This allows you to always know how much Cash is in the account and what your Revenue is for the month so far.
Here is an example of the Cash account with all transactions posted:
Notice that debits increase the balance and credits decrease the balance.
Here is the completed ledger for all transactions:
Posting Reference or Post Ref is a column in an accounting General Journal and General Ledger. It serves as a check and balance to ensure each transaction has been posted to the appropriate account. It is used in the process of posting transactions from the general journal to the general ledger.
In the General Journal, when an account has been posted to an individual account, the number assigned to that account is listed in the Post Ref column to indicate that entry has been posted. In the General Ledger, for the corresponding transaction, the page number of the General Journal is entered to signify the page where the transaction can be found.
A Trial Balance lists each account and its balance. The purpose of a Trial Balance is to double check our work to make sure our debits equal our credits. We do a trial balance when all the transactions are posted to the ledger and the balances updated. We take the balance from each account, grouping account types together (assets with assets, liabilities with liabilities, etc.), and we enter the balances into the Trial Balance. Here’s the completed Trial Balance:
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Caroline Grimm is an accounting educator and a small business enthusiast. She holds Masters and Bachelor degrees in Business Administration. She is the author of 13 books and the creator of Accounting How To YouTube channel and blog. For more information visit: https://accountinghowto.com/about/
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