Bookkeeping All-In-One For Dummies. Dummies Consumer
target="_blank" rel="nofollow" href="#x8_c03_fig_0001"> Figure 3-1: Summarizing cash transactions so they can be posted to the General Ledger.
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Figure 3-2: Summarizing sales transactions so they can be posted to the General Ledger.
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Figure 3-3: Summarizing goods to be sold transactions so they can be posted to the General Ledger.
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Figure 3-4: Summarizing miscellaneous transactions so they can be posted to the General Ledger.
Figure 3-1 shows a summary of the Cash Disbursements journal for a business.
The following General Ledger entry is based on the transactions that appear in Figure 3-1:
This General Ledger summary balances out at $2,050 each for the debits and credits. The Cash account is decreased to show the cash outlay, the Rent and Salaries expense accounts are increased to show the additional expenses, and the Accounts Payable and Credit Card Payable accounts are decreased to show that bills were paid and are no longer due.
Figure 3-2 shows the Sales journal for a sample business.
The following General Ledger entry is based on the transactions that appear in Figure 3-2:
Note that this entry is balanced. The Accounts Receivable account is increased to show that customers owe the business money because they bought items on store credit. The Sales account is increased to show that even though no cash changed hands, the business in Figure 3-2 took in revenue. Cash will be collected when the customers pay their bills.
Figure 3-3 shows the business’s Purchases journal for one month. The following General Ledger entry is based on the transactions that appear in Figure 3-3:
Like the entry for the Sales account, this entry is balanced. The Accounts Payable account is increased to show that money is due to vendors, and the Purchases expense account is also increased to show that more supplies were purchased.
Figure 3-4 shows the General journal for a sample business. The following General Ledger entry is based on the transactions that appear in Figure 3-4:
Checking for balance – Debits and Credits both total to $10,260.
In this entry, the Sales Return and Purchase Return accounts are increased to show additional returns. The Accounts Payable and Accounts Receivable accounts are both decreased to show that money is no longer owed. The Vehicles account is increased to show new company assets, and the Capital account, which is where the owner’s deposits into the business are tracked, is increased accordingly.
Posting Entries to the Ledger
After you summarize your journals and develop all the entries you need for the General Ledger (see the previous section), you post your entries into the General Ledger accounts.
Whatever the reason someone is questioning an entry in the General Ledger, you definitely want to be able to find the point of original entry for every transaction in every account. Use the reference information that guides you to where the original detail about the transaction is located in the journals to answer any question that arises.
For this particular business, three of the accounts – Cash, Accounts Receivable, and Accounts Payable – are carried over month to month, so each has an opening balance. Just to keep things simple, this example starts each account with a $2,000 balance. One of the accounts, Sales, is closed at the end of each accounting period, so it starts with a zero balance.
Most businesses close their books at the end of each month and do financial reports. Others close them at the end of a quarter or end of a year. (Book V Chapter 6 talks more about which accounts are closed at the end of each accounting period and which accounts remain open, as well as why that is the case.) For the purposes of this example, it’s assumed that this business closes its books monthly. And the figures that follow only give examples for the first five days of the month to keep things simple.
As you review the figures for the various accounts in this example, take notice that the balance of some accounts increases when a debit is recorded and decreases when a credit is recorded. Others increase when a credit is recorded and decrease when a debit is recorded. That’s the mystery of debits, credits, and double-entry accounting. (For more, flip to Book I Chapter 1.)
The Cash account (see Figure 3-5) increases with debits and decreases with credits. Ideally, the Cash account always ends with a debit balance, which means there’s still money in the account. A credit balance in the cash account indicates that the business is overdrawn, and you know what that means – checks are returned for nonpayment.
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Figure 3-5: Cash account in the General Ledger.
The Accounts Receivable account (see Figure 3-6) increases with debits and decreases with credits. Ideally, this account also has a debit balance that indicates the amount still due from customer purchases. If no money is due from customers, the account balance is zero. A zero balance isn’t necessarily a bad thing if all customers have paid their bills. However, a zero balance may be a sign that your sales have slumped, which could be bad news.
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Figure 3-6: Accounts Receivable account in the General Ledger.
The Accounts Payable account (see Figure 3-7) increases with credits and decreases with debits. Usually, this account has a credit balance because money is still due to vendors, contractors, and others. A zero balance here equals no outstanding bills.
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Figure 3-7: Accounts