We have made the journal entries in the general journal, now they must be posted in to T-accounts and ledger accounts which is the second step of accounting cycle. But before posting, we will discuss this accounting topic in detail
In the early ages of your career of accountancy, you need to understand the concept of double entry system in accounting. The double entry concept implies that in every business transaction there are at least two accounts are affected, out of which one is to debit and the second is to credit. However, an accounting or business transaction may have more than two accounts as well. So, in the beginning in order to understand the concept and develop your skills of identifying two accounts from each transaction, T-Accounts are prepared.
T-Accounts are actually graphic presentation or visual aid of General Ledger. Incorporated entries on the both sides of this account. T-Accounts are named so because it shapes like the English Word ‘T’. T-accounts form is given as under:
All the debit accounts/amounts involving in a transaction are recorded on the left side of while credit effects are reflected on the right side of T-Accounts.
T-Accounts is very important fundamental training tool to understand the double entry system. Students, while preparing their course for upcoming exams, use T-accounts to apprehend the accounting concepts involved in double entry system. In real business, We usually use T-accounts for adjusting entries like accruals, deferrals etc. This is very important to note that such accounts are only used in ‘accrual base of accounting system’ whereas there is no use of such accounts in cash base of accounting system. In the later system these accounts are not used because there is no concept of double effects of an accounting transaction in cash base of accounting and only one side of the transaction is accounted for.
Once the transactions are recorded in the General Journal, the next step is to transfer these transactions to their specific accounts called ledger accounts.
The process of transferring entries from General journal to General Ledger is known as ‘posting’. In the primary book of accounting journal entry transactions are usually lying scattered and thus a quick report or status of a specific accounts cannot be readily ascertained. The development and maintenance of General Ledger overcomes and eliminated this problem by bringing all the transactions relating to an account together.
Thus, we can say that General Ledger is an accounting book which contains a classified record of all business transactions, already recorded in the General Journal.
Format of General Ledger
- Date Column. In this column the date on which posting is being made is recorded.
- Description Column. In this column corresponding credit or debit account whichever the case is given for the account being recorded in ledger. Suppose on the credit side of the cash ledger, the corresponded debit amount appeared in the journal entry will be recorded in description Column.
- Ref Column. In this Column page reference of General Journal wherein this entry has been recorded is entered. This facilitates quick reference in time of need.
- Amount Column. On the both sides of a ledger account (debit and credit side) the amount column is provided wherein the amount of transaction is inserted
Previously Mr. Titus posted journal entries, here we will post it to the ledger accounts
We have posted journal entries to T-accounts. In the next step of accounting cycle it is easy to create unadjusted trial balance.