Chapter 4
The Accounting Cycle: Journals and Ledgers
89
6
Enter the ledger number into the posting reference in the journal as a checking process
once the amount has been posted.
7
Repeat the steps for all lines in the journal entry.
It is good practice to double check that the balance shown in the ledger for each account is a nor-
mal balance (e.g. cash is an asset and assets have a debit normal balance). If an account does not
have a normal balance, this may indicate that an error has occurred. Double check that the balance
was calculated correctly, the amount in the ledger was correctly copied from the journal and the
journal entry was created correctly.
In the modern accounting system, the posting process is automatically done by the computer system.
Accountants no longer need to refer to a specific page in the journal book to look for transactions.
Return to Mark Parish’s company, MP Consulting, to see how a full set of journals would be pre-
pared and posted to the ledger accounts. First examine the opening balances of the company from
the previous period’s balance sheet in Figure 4.11.
MP Consulting
Balance Sheet
As at December 31, 2015
Assets
Liabilities
Cash
$3,000 Accounts Payable
$1,000
Accounts Receivable
1,200 Unearned Revenue
900
Equipment
6,000 Bank Loan
3,000
Total Liabilities
4,900
Owner’s Equity
Parish, Capital
5,300
Total Assets
$10,200
Total Liabilities & Equity
$10,200
________________
figure 4.11
Note that the above balance sheet is dated December 31, 2015. It shows the ending account bal-
ances for the month of December 2015, which are also the beginning balances for the month of
January 2016. In general, a balance sheet account’s ending balance for a given accounting period
is the beginning balance of the next period. In this textbook, the term “opening balance” will be
Accounting software such as QuickBooks® and Sage automatically perform the functions of double
entries. For example, assume that a cash payment is received by the company and the user defines
the payment as a payment for services or goods provided. The user is usually the company’s
bookkeeper or accountant. The software will automatically realize that an asset account must be debited
and the revenue account must be credited. After the entry is journalized by the software, the amounts are
automatically posted to the general ledger and the trial balance. There is a significant level of automation
provided by accounting software, which can reduce the number of accounting errors and misstatements if
used correctly.
INTHE REAL WORLD
