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Lesson details
- Estimated study time
- 20 min
- Reading context
- Chapter 1
Procedure walkthroughUse this lesson when you need to follow journal-entry lines into ledger accounts and then into a trial balance.
Learning objectives (6)
The journal lists transactions in date order. The general ledger groups the same information by account. A trial balance then lists each ledger account's ending balance.
These records appear in the first 4 steps of the 9-step accounting cycle. The steps are to analyze transactions, record journal entries, post the entries to the ledger, and prepare an unadjusted trial balance. Chapter 1 introduces the full cycle and covers its first 4 steps. This lesson follows one entry through the last 3 of those steps.
Each record has a different purpose:
| Record | Main question |
|---|---|
| Journal | What did Alder record, and when? |
| General ledger | What activity and balance does each account contain? |
| Trial balance | Do the ending debit balances equal the ending credit balances? |
Post each journal line to its account
On November 1, a client pays Alder $6,000 for 6 months of support that Alder has not yet provided. Alder records the cash received and its obligation to provide the support:
Posting transfers each line to the account named in the entry. The $6,000 debit goes to the debit side of Cash. The $6,000 credit goes to the credit side of Unearned Revenue. Each posting keeps the November 1 date and a reference to the journal entry.
| Account | Side posted | Effect on balance |
|---|---|---|
| Cash | Debit $6,000 | Increases the asset balance |
| Unearned Revenue | Credit $6,000 | Increases the liability balance |
Posting does not create a second transaction. It reorganizes the journal-entry lines so Alder can calculate each account balance.
Compute the Cash balance
For this standalone example, assume zero opening balances and these four transactions:
| Date | Cash debit | Cash credit | Running balance |
|---|---|---|---|
| January 2, shareholder investment | $40,000 | $40,000 debit | |
| January 2, equipment purchase | $18,000 | $22,000 debit | |
| April 1, insurance premium | $12,000 | $10,000 debit | |
| November 1, customer advance | $6,000 | $16,000 debit |
Cash is an asset with a normal debit balance:
$0 opening + $46,000 debits - $30,000 credits = $16,000 debit balance
The $16,000 is the Cash balance after these four transactions, not total cash receipts or payments. This example contains no other transactions.
Quick checkAlder posts the November 1 Cash debit but forgets the Unearned Revenue credit. What happens to the trial-balance totals?
Answer: The debit total exceeds the credit total by $6,000. The journal entry balanced, but the one-sided posting did not preserve that equality in the ledger.
Build a trial balance from ending balances
Using only the 4 transactions in the Cash table, the affected accounts have these balances:
| Account | Debit | Credit |
|---|---|---|
| Cash | $16,000 | |
| Prepaid Insurance | 12,000 | |
| Equipment | 18,000 | |
| Unearned Revenue | $6,000 | |
| Common Stock | 40,000 | |
| Total | $46,000 | $46,000 |
Each account appears once with its ending balance. The trial balance does not list every journal line or show the activity inside each balance.
What the totals can and cannot show
Unequal totals mean that at least one error affected the debit and credit columns differently. The difference does not identify the error or the step where it occurred. Equal totals establish only that the final debit and credit columns add to the same amount.
Equal totals do not prove that Alder recorded every transaction or used the correct accounts. The totals can remain equal when:
- an entire balanced entry is omitted or entered twice;
- both sides use the same wrong amount;
- the correct amount is posted to the wrong account on the same side; or
- separate errors offset each other.
Quick checkAlder debits Advertising Expense instead of Software Expense for a $4,800 software cost and records the credit correctly. Will the trial balance still agree?
Answer: Yes. Both expense accounts have debit balances, so the debit total is unchanged. The trial balance cannot identify this wrong-account error by itself.
The worked example Posting and trial balance uses a separate set of opening balances and entries for more practice.