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8. The General Ledger

As you just saw, the general journal is, in essence, a notebook that contains page after page of detailed accounting transactions. In contrast, the general ledger is, in essence, another notebook that contains a page for each and every account in use by a company. The ledger account for Xao would include the Cash page as illustrated below:

ACCOUNT: Cash

Date

Description

Debit

Credit

Balance

Jan. 1, 20X3

Balance forward

$ -

Jan. 1, 20X3

Journal page 1

$ 25,000

25,000

Jan. 4, 20X3

Journal page 1

$ 2,000

23,000

Jan. 8, 20X3

Journal page 1

4,000

27,000

Jan. 18, 20X3

Journal page 2

500

26,500

Jan. 25, 20X3

Journal page 2

4,800

31,300

Jan. 28, 20X3

Journal page 2

5,000

26,300

Xao's transactions utilized all of the following accounts:

o Cash

o Accounts Receivable

o Land

o Accounts Payable

o Notes Payable

o Capital Stock

o Service Revenue

o Advertising Expense

o Utilities Expense

Therefore, Xao Corporation's general ledger will include a separate page for each of these nine accounts.

8.1. Posting

Before diving into the details of each account, let's consider what we are about to do. We are going to determine the balance of each specific account by posting. To do this, we will copy ("post") the entries listed in the journal into their respective ledger accounts.

In other words, the debits and credits in the journal will be accumulated ("transferred"/ "sorted") into the appropriate debit and credit columns of each ledger page. Following is an illustration of the posting process.

Notice that arrows are drawn to show how the first journal entry is posted. A similar process would occur for each of the other accounts.

In reviewing the ledger accounts at right, notice that the "description" column includes a cross-reference back to the journal page in which the transaction was initially recorded. This reduces the amount of detailed information that must be recorded in the ledger, and provides an audit trail back to the original transaction in the journal.

ACCOUNT:

Cash

Date

Description

Debit

Credit

Balance

Jan. 1, 20X3

Balance forward

$ -

Jan. 1, 20X3

Journal page 1

$ 25,000

25,000

Jan. 4, 20X3

Journal page 1

$ 2,000

23,000

Jan. 8, 20X3

Journal page 1

4,000

27,000

Jan. 18, 20X3

Journal page 2

...................................

.........................500

26,500

Jan. 25, 20X3

Journal page 2

4,800

31,300

Jan. 28, 20X3

Journal page 2

..................................

5,000

26,300

ACCOUNT: Accounts Receivable

Date

Description

Debit

Credit

Balance

Jan. 1, 20X3

Balance forward

$ -

Jan. 17, 20X3

Journal page 2

$ 8,000

8,000

Jan. 25, 20X3

Journal page 2

$ 4,800

3,200

ACCOUNT:

Land

Date

Description

Debit

Credit

Balance

Jan. 1, 20X3

Balance forward

$ -

Jan. 28, 20X3

Journal page 2

$ 15,000

15,000

ACCOUNT: Accounts Payable

Date

Description

Debit

Credit

Balance

Jan. 1, 20X3

Balance forward

$ -

Jan. 15, 20X3

Journal page 2

$ 1,000

1,000

Jan. 18, 20X3

Journal page 2

$ 500

500

ACCOUNT: Notes Payable

Date

Description

Debit

Credit

Balance

Jan. 1, 20X3

Balance forward

$ -

Jan. 28, 20X3

Journal page 2

$ 10,000

10,000

ACCOUNT: Capital Stock

Date

Description

Debit

Credit

Balance

Jan. 1, 20X3

Balance forward

$ -

Jan. 1, 20X3

Journal page 1

$ 25,000

25,000

ACCOUNT:

Service Revenue

Date

Description

Debit

Credit

Balance

Jan. 1, 20X3

Balance forward

$ -

Jan. 8, 20X3

Journal page 1

$ 4,000

4,000

Jan. 17, 20X3

Journal page 2

8,000

12,000

ACCOUNT: Advertising Expense

Date

Description

Debit

Credit

Balance

Jan. 1, 20X3

Balance forward

$ -

Jan. 4, 20X3

Journal page 1

$ 2,000

2,000

ACCOUNT: Utilities Expense

Date

Description

Debit

Credit

Balance

Jan. 1, 20X3

Balance forward

$ -

Jan. 15, 20X3

Journal page 2

$ 1,000

1,000

General Journal

The Check Marks ( ) in the journal indicate that a particular transaction has been posted to the ledger. Without these marks (in a manual system), it would be very easy to fail to post a transaction, or even post the same transaction twice.

8.2. To Review

Thus far you should have grasped the following accounting "steps":

o STEP 1: Each transaction is analyzed to determine the accounts involved

o STEP 2: A journal entry is entered into the general journal for each transaction

o STEP 3: Periodically, the journal entries are posted to the appropriate general ledger page

Thus far you should have grasped the following accounting

 
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