BITS Pilani

presentation
BITS Pilani Krishna M
Economics and Finance
Pilani Campus

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 BITS Pilani
Pilani Campus

FIN ZC415 / MBA ZC415

Financial and Management Accounting
Lecture 4: Ledger Posting
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 Outline of the Presentation

Ledger Posting

 Meaning and format of account – T accounts

 How to post journal entries into ledger?

 Posting Journal entries into Ledgers
 Balancing of accounts and rules

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 Outline of the last lecture
Journal

 What is journal?
 Meaning and format of Journal
 Nature of business transactions

 Rules of debit and credit

 What is debit and credit
 Rules of debit and credit for types of accounts using accounting
equation
 Double entry system
 Practice questions – recording transactions in Journal

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 Solution: Homework 2
Some of the transactions carried out on February 1, 2016
by a company called XW Ltd.

1. Borrowed 120,000 from a lawyer.

2. Collected Rs15,000 on account receivable
3. Paid Rs5,600 on Notes payable
4. Sold inventory for 1,25,000: of which 100,000 was for
cash and 25,000 was on open account. The cost of
goods sold was Rs70,000
5. Acquired store equipment Rs7,000 for cash.
6. Replenished (top up) inventory for cash Rs34,000
7. Paid rent expense incurred Rs10,000 in cash
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 Exercise -1 Solution

Debit Credit
-1 Cash (A+) 1,20,000
Note Payable (+L) 1,20,000

2 Cash (A+) 15,000

Account receivable (A-) 15,000

3 Notes payable (L-) 5,600

Cash (A-) 5,600

4.1 Cash (A+) 1,00,000

Account receivable 25,000
Sales revenue (RE+) 1,25,000

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 Exercise -1 Solution

Debit Credit
4.1 Cost of goods sold (-RE) 70,000
Inventory (A-) 70,000

5 Store equipment(A+) 7,000

Cash (A-) 7,000

6 Inventory (A+) 34,000

Cash (A-) 34,000

7 Rent expense 1,00,00

Cash 10,000

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 The Accounting Process

1. Analyze transactions

2. Journalize original entries

3. Post journal entries to ledger

4. Identify, journalize, and post

adjusting entries

5. Journalize and post closing

entries

6. Prepare financial statements

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 What is T Account

 Throughout this course we are going to use the T-

account as a tool to represent a ledger account.
 “T-account” is merely a shorthand term for the entire
ledger account.
 The T-account has a left and a right side.
 As a convention that we’ve adopted over the years
 We are going to refer to the left side of the T-account as
the debit side and
 The right side of the T-account has the credit side.
 The words debit and credit have no specific meaning other
than that they represent a left and right side of the ledger
account.
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 Steps in the Recording Process

The Ledger is comprised of the entire group of accounts

maintained by a company.

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 Direction of Transaction Effects

The left side of the The right side of the

T-account is always the T-account is always the credit
debit side. side.

Account Name

Left Right
Debit Credit

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 Direction of Transaction Effects

The left side of the The right side of the

T-account is always the T-account is always the credit
debit side. side.

Cash

2000
1,20,000
5000

Cash balance
1,23,000

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 Homework-1: Example (Under Assets)

Cash

1,20,000 5600
15000 7000
1,00,000 34000
10000
Cash balance
178400

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 Homework-1: Example (Under Assets)

Account receivable

25000 15000

Account balance
10,000

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 Homework-1: Example (Under Assets)

Inventory

70,000
34000

Inventory Balance
?

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 Homework-1: Example (Under Assets)

Store equipment

7000

Account balance
7000

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 Homework-1: Example (Under Liability)

Notes payable

5600 120000

Account balance
114400

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 Homework-1: Example (Under SE)

COGS

70,000

Account balance
70,000

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 Homework-1: Example (Under SE)

Rent expense

10,000

Account balance
10,000

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 Homework-1: Example (Under SE)

Revenue Account

125000

Account balance
125000

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 Another formal example

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 Transaction Analysis

On August 1, ITC invested Rs5,000 in the business

as owner.

Cash Paid-in Capital

5,000 5,000

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 Transaction Analysis

On August 1, the firm paid Rs750 rent for the

month of August.

Cash Prepaid Expenses

5,000 750 750

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 Transaction Analysis

The firm borrowed Rs4,000 from a bank on a 9 percent

note payable, with interest payable quarterly and the
principal due in full at the end of two years.

Cash Notes Payable

4,000
5,000 750
4,000

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 Transaction Analysis

Equipment costing Rs7,200 was purchased for cash.

The expected life of the equipment was 10 years.

Cash Equipment, at Cost

7,200
5,000 750
4,000 7,200

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 Transaction Analysis

An Initial Inventory of Pizza ingredients and boxes was

purchased on credit for Rs800 .

Inventory Account payable

800 800

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 Transaction Analysis

In August Pizza sales were Rs12000, all for cash.

Sales revenue (a temporary account)

Cash Sales revenue

5,000 750 12,000

4,000 7,200
12,000

A temporary account: A a general ledger account that begins

each accounting year with a zero balance.
Then at the end of the year its account balance is removed by
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 Transaction Analysis

During August the pizzeria’s employees were paid

Rs3000 in wages
Wage expense (a temporary account)

Cash Wage expense

5,000 750 3,000

4,000 7,200
12,000 3,000

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 Transaction Analysis

During the month, an additional Rs5750 of ingredients

and boxes was purchased on credit.

Inventory Account payable

800 800
5750 5750

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 Transaction Analysis

August sales consumed Rs6000 of ingredients and boxes.

Inventory Cost of goods sold

800 6000 6000
5750

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 Transaction Analysis

At the end of the month, bills for various utilities used in

August were received, totaling Rs450.

Accounts Payable Utilities Expenses

800 450
5750
450

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 Transaction Analysis

During the month, Rs4800 of accounts payable was paid.

Cash Accounts payable

5,000 750 4800 800

4,000 7,200 5750
450
12,000 3,000
4800

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 Transaction Analysis

On August 13, the firm catered a party for a fee of Rs200.

Because the customer was a friend of the company, the
customer was told that payment could be made later in the
month
Sales revenue Accounts receivable
12000 200
200

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 Transaction Analysis

On August 29, a check was received from the company's

friend for the party of August 13

Cash Accounts receivable

5,000 750 200 200

4,000 7,200
12,000 3,000
200 4800

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 Balancing an Account

Cash
Balance -0- 750
5,000 7,200
4,000 4,800
200 3,000
12,000 15750.
5,450 21,200

Balance 5,450

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 Closing the Books

At the end of the accounting period, companies transfer the

temporary account balances to the permanent stockholders’
equity account—Retained Earnings.

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 Closing Entries

Closing the Sales Revenues account

Sales Income
Revenues Summary
12,200 12000 12,200
200

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 Closing Entries

Closing the Cost of Sales account

Cost of Income
Sales Summary
6,000 6,000 6000

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 Closing Entries

Closing the wage expense account

Wage expense Income

Summary
3000 3,000 3000

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 The Trial Balance

Trial Balance
 A list of accounts and their balances at a given time.

 Accounts are listed in the order in which they appear

in the ledger.

 Purpose is to prove that debits

equal credits.

 May also uncover errors in

journalizing and posting.

 Useful in the preparation of

financial statements.
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