Financial Accounting for Business: The General Ledger, Posting General Journal Entries & Preparing a Trial Balance

The General Ledger

  • Collection of individual accounts organized as they appear in financial statements.
  • Each account has a specific identification number.

Account Formats

  • T-Accounts: Used for quick calculations, with a title, debit side, and credit side.
  • Running Balance Accounts: Used in formal, computerized systems.

Posting General Journal Entries to the General Ledger

  • General journal entries record transactions.
  • The general ledger records the effects of transactions on each individual account.
  • Posting is automated in computerized systems.

Trial Balance

  • Lists all ledger accounts and their balances.
  • Debits and credits must be equal.
  • Limitations: May balance but still contain errors; doesn’t identify errors if unbalanced.

Types of Trial Balances

  • Unadjusted Trial Balance: Prepared before adjusting entries.
  • Adjusted Trial Balance: Completed after adjusting entries.
  • Post-Closing Trial Balance: Shows balances after closing entries, including only Assets, Liabilities, and Equity accounts.

Double-Entry Accounting

  • Each transaction affects two or more accounts.
  • At least one debit and one credit account are involved.
  • Debits must equal credits: Assets = Liabilities + Capital + Income – Expenses – Drawings.

Debit and Credit Rules

  • Assets: Increase Debit, Decrease Credit
  • Liabilities: Increase Credit, Decrease Debit
  • Equity: Increase Credit, Decrease Debit
  • Income: Increase Credit, Decrease Debit
  • Expenses: Increase Debit, Decrease Credit
  • Drawings: Increase Debit, Decrease Credit

Accounting Equation

  • ASSETS=LIABILITIES+OWNERS’EQUITYASSETS = LIABILITIES + OWNERS’ EQUITY
  • Expanded: ASSETS=LIABILITIES+Capital+Income–Expenses–DrawingsASSETS = LIABILITIES + Capital + Income – Expenses – Drawings
  • ASSETS=LIABILITIES+Capital+Profits–DrawingsASSETS = LIABILITIES + Capital + Profits – Drawings

The Recording Process

  1. Analyze transactions.
  2. Journalize transactions.
  3. Post to ledger.
  4. Prepare Adjusting Journal Entries.
  5. Prepare Closing Journal Entries.
  6. Prepare Financial Statements.