Posting and the Trial Balance "for every debit dollar there
must be a credit dollar…"
A chart of accounts is a list of all of the accounts in the accounting system. The General Ledger is the heart of this system and represents all of the enterprise's active accounts under the broad classifications represented in expanded accounting equation. How many accounts can you have? As many as you (the company) think you need to account for your enterprise. This is an expanding and a flexible system wherein you are able to ultimately present financial statements. There is an order of procedures each fiscal period in this accounting system which is known as the accounting cycle:
1. Analyze
transactions.
2. Record in the journal.
3. Post to the accounts in the general ledger.
4. Prepare a trial balance.
5. Adjust the general ledger accounts.
6. Complete the worksheet.
7. Prepare financial statements
8. Journalize and post-adjusting entries.
9. Journalize and post closing entries.
10. Prepare a post-closing trial balance.
The most important step is the first step which is performed before pencil ever touches paper so to speak. Remember, this is a system and garbage in, garbage out. If you do not book the correct entries going into the system, then the accounts and thus the financial statements could be misstated. How do the accounts "fill up"? Once a transaction is analyzed, the accountant enters the debit and credit into the general journal which is call the book of original entry. The journal is like a diary…it is a chronicle of the period's events expressed in debits and credits. All roads eventually lead to cash, and most transactions involve cash. Therefore, the first question you should ask when analyzing transactions is "Is it cash?" Meaning, does this transaction right now involve either the payment of or the receipt of cash by you, the company? Half your battle analyzing is over. This keeps it simple!
*Link database to use for a test of transactions.
Subsequently,
the transferal of the debits and credits to the respective accounts in
the ledger is the posting operation. A trial balance is a schedule of
all account balances (or account totals) in the system. Accounts without
balances are not listed. The purpose of the trial balance is to insure
total debit balances equal total credit balances. Which ever it takes
(debit or credit) to increase an account is called that accounts normal
side and thus its normal balance. If the debit column equals the debit
column does that mean mistakes have not been made? No, it only means that
in each transaction, there was booked for every debit dollar a credit
dollar. However, an accountant could have book to the wrong account. Generally,
the trial balance is made to begin the period end process. This trial
balance would contain the total balances of all accounts. Some accounts
are ready to report, but some need to be adjusted to insure that all expenses
are reported along with all revenues for that period whether cash was
exchange or not. This is the matching principle and these adjustments
are referred to as accruals and deferrals.
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- John Templeton, HCCS Accounting Instructor
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