From Journal Entries to Ledger Balances
A journal presents transactions in date order; a general ledger groups those same transactions by account. Posting is the process of transferring each debit and credit in a journal entry to the corresponding ledger account. The goal is not to create new accounting entries, but to make each account’s activity and resulting balance easy to follow.
For example, if a journal entry debits Cash and credits Service Revenue, posting transfers the debit amount to the Cash account and the credit amount to the Service Revenue account. Each amount must be posted to the same account and on the same debit or credit side as it appears in the journal. The earlier material on documenting transactions in the journal establishes how to record the entry; this tutorial follows those entries into the ledger.
How Ledger Accounts Record Activity
A ledger account may be displayed as a T-account, with debits on the left and credits on the right, or as a running-balance record. Either format must preserve the same information: the date, the amount, whether it was a debit or credit, and enough reference information to locate the related journal entry.
An account’s normal balance is the side on which increases to that account are ordinarily recorded. Assets, expenses, and dividends ordinarily have debit balances. Liabilities, equity accounts, and revenue ordinarily have credit balances. A normal balance is a useful expectation, not a substitute for calculating the actual balance: a particular account can have a balance on the other side.
| Account category | Ordinary increase | Ordinary balance |
|---|---|---|
| Assets and expenses | Debit | Debit |
| Liabilities, equity, and revenue | Credit | Credit |
| Contra accounts | Opposite the related account | Opposite the related account |
To calculate a balance, total the debit column and the credit column separately, then subtract the smaller total from the larger. The difference belongs on the side with the larger total. When an account is carried forward in a two-sided ledger format, the balance is written on the smaller side to make both sides equal; the balance is then brought down on the opposite side as the account’s starting balance for the next period. This balancing convention does not change the account’s economic balance.
A Reliable Posting Sequence
A consistent sequence reduces the chance of omitting a line or posting an amount to the wrong side. Keep the journal entry and the relevant ledger accounts available together, and complete the whole entry before moving on to the next transaction.
Read each journal line and note the account debited or credited and the amount on that line.
Enter each amount in the matching ledger account, on the same debit or credit side as in the journal.
Enter the date and a journal reference in the ledger, and record the ledger account reference in the journal if that procedure is used. These references help trace a posting in either direction.
Compare the account’s debit and credit totals, including any beginning balance, and identify which side is larger.
Confirm that every journal line was posted once and that the entry’s total debit amount equals its total credit amount.
Why Posting Preserves Debit-Credit Equality
Each properly recorded journal entry has equal total debits and credits. Posting preserves that equality because it transfers the same amounts, without changing them, from journal lines to ledger accounts. If an entry debits one account for $800 and credits another for $800, the ledger receives a total of $800 in debits and $800 in credits from that entry. The same reasoning applies when an entry has multiple debit or credit lines: the sum transferred to each side remains the sum in the journal. This is a check on the transfer process; it does not, by itself, establish that every account or transaction has been recorded correctly.
Worked Example: Posting Cash and Revenue Transactions
A hypothetical business begins May with no balances in the accounts shown. Its May journal contains these entries: May 1, debit Cash $20,000 and credit Common Shares $20,000; May 4, debit Equipment $5,600 and credit Cash $5,600; May 12, debit Accounts Receivable $3,200 and credit Service Revenue $3,200; May 20, debit Cash $1,000 and credit Accounts Receivable $1,000. Post the entries and determine each ending balance shown.
Method. Transfer each line to its named account without changing its amount or side, then total the debits and credits in each account.
Cash. The May 1 debit is $20,000. The May 4 credit is $5,600, and the May 20 debit is $1,000. Therefore, total Cash debits are $20,000 + $1,000 = $21,000, and total Cash credits are $5,600. The debit balance is $21,000 − $5,600 = $15,400.
Accounts Receivable. The May 12 debit is $3,200, and the May 20 credit is $1,000. Total debits are $3,200 and total credits are $1,000, so the ending debit balance is $3,200 − $1,000 = $2,200.
Other accounts. Equipment receives a $5,600 debit and has a $5,600 debit balance. Common Shares receives a $20,000 credit and has a $20,000 credit balance. Service Revenue receives a $3,200 credit and has a $3,200 credit balance.
Check. The journal entries contain total debits of $20,000 + $5,600 + $3,200 + $1,000 = $29,800 and the same total credits: $20,000 + $5,600 + $3,200 + $1,000 = $29,800. The posted account balances also have total debits of $15,400 + $2,200 + $5,600 = $23,200 and total credits of $20,000 + $3,200 = $23,200. The balances agree.
Common mistake avoided: Do not treat the May 20 collection as new revenue. Its debit goes to Cash and its credit reduces Accounts Receivable, exactly as stated in the journal entry.
Compound Entries and Partial Payments
One journal entry can have several debit lines, several credit lines, or both. Each line is posted separately to the account it names. Do not copy the entry’s total into every account; doing so would overstate the posting. When a business pays only part of an amount owed, the debit to the liability account reduces that account, while the cash credit records the payment.
Worked Example: Posting Purchases and a Partial Payable Payment
A hypothetical firm has no beginning balance in Supplies or Accounts Payable. On June 3 it buys supplies on credit for $2,750. On June 11 it buys additional supplies on credit for $1,250. On June 18 it pays the supplier $2,000. Post the entries and calculate the ending balances in Supplies and Accounts Payable.
Method. Post each journal line to its specified ledger account. Supplies is an asset, so its purchases are debits. Accounts Payable is a liability, so amounts owed increase with credits and payments reduce the payable with debits.
June 3 purchase. Debit Supplies $2,750 and credit Accounts Payable $2,750. Post $2,750 to the debit side of Supplies and the credit side of Accounts Payable.
June 11 purchase. Debit Supplies $1,250 and credit Accounts Payable $1,250. Supplies now has total debits of $2,750 + $1,250 = $4,000. Accounts Payable has total credits of $2,750 + $1,250 = $4,000.
June 18 payment. Debit Accounts Payable $2,000 and credit Cash $2,000. Post the $2,000 debit to Accounts Payable. Its debit total is now $2,000 and its credit total remains $4,000, giving a credit balance of $4,000 − $2,000 = $2,000. The balance represents the amount still payable in this ledger account.
Ending balances. Supplies has a $4,000 debit balance. Accounts Payable has a $2,000 credit balance.
Check. Across the three entries, total debits are $2,750 + $1,250 + $2,000 = $6,000. Total credits are $2,750 + $1,250 + $2,000 = $6,000. The ending account balances shown also total $4,000 of debits and $2,000 of credits, so this subset of accounts alone is not a balance check; the cash credit of $2,000 supplies the remaining credit balance.
Common mistake avoided: A payment is not another credit to Accounts Payable. Crediting the payable would increase what is owed; the payment debits the payable and reduces its credit balance.
Beginning Balances, Running Balances, and Traceability
Many ledger accounts already have a balance at the start of the period. Include that opening balance when calculating the ending balance; do not confuse it with a new journal posting. A running-balance ledger updates the balance after each transaction, which makes the sequence of changes visible. In a two-sided account, the same result can be found by separately totaling debits and credits.
References are important because a final balance alone does not show how it arose. A journal reference beside a ledger posting can identify the entry that originated it. Conversely, an account reference in the journal can help locate where a line was posted. To trace a selected balance, identify its ledger account, examine the dated postings that contribute to it, and follow their references back to the journal. The sum of those postings, together with any beginning balance, should reproduce the ledger balance.
Worked Example: Tracing a Cash Balance Through Several Entries
A hypothetical service firm begins August with Cash of $10,000 debit, Accounts Receivable of $900 debit, and Accounts Payable of $1,200 credit. Its August journal records: August 2, debit Wages Expense $1,800 and credit Cash $1,800; August 7, debit Prepaid Insurance $2,400 and credit Cash $2,400; August 19, debit Cash $5,700 and Accounts Receivable $1,300, and credit Service Revenue $7,000; August 25, debit Cash $500 and credit Accounts Receivable $500; August 28, debit Accounts Payable $700 and credit Cash $700. Find the ending balances of Cash, Accounts Receivable, and Accounts Payable, and explain how to trace the Cash balance.
Method. Treat each stated opening amount as the account’s beginning balance. Post every journal line to the named account, then apply each debit or credit to the account’s running balance.
Cash. Begin with a $10,000 debit balance. The cash credits are $1,800, $2,400, and $700, for total credits of $1,800 + $2,400 + $700 = $4,900. The cash debits are $5,700 and $500, for total debits of $6,200. Including the opening balance, total debits are $10,000 + $6,200 = $16,200. Thus Cash ends with a debit balance of $16,200 − $4,900 = $11,300.
Accounts Receivable. Begin with a $900 debit balance. Add the August 19 debit of $1,300, then subtract the August 25 credit of $500: $900 + $1,300 − $500 = $1,700 debit.
Accounts Payable. Begin with a $1,200 credit balance. The August 28 debit of $700 reduces the liability: $1,200 − $700 = $500 credit.
Trace the Cash balance. Start with the $10,000 opening debit, then locate the three journal-referenced cash credits and two cash debits listed above. Their net effect is $6,200 − $4,900 = $1,300 of additional debit balance. Adding that net increase to the opening $10,000 gives $11,300.
Check. August journal debits total $1,800 + $2,400 + $7,000 + $500 + $700 = $12,400. August journal credits also total $1,800 + $2,400 + $7,000 + $500 + $700 = $12,400. For the three accounts calculated, ending debits are Cash $11,300 plus Accounts Receivable $1,700, or $13,000; ending credits are Accounts Payable $500. The remaining ledger accounts are needed to compare all ending debit and credit balances.
Common mistake avoided: The August 19 compound entry contains two debits. Post the $5,700 Cash debit and the $1,300 Accounts Receivable debit separately; do not post the $7,000 total to either account.
Common Posting and Balancing Traps
A ledger balance is only useful if the account, side, and amount have all been carried over accurately. Several errors are especially easy to make when entries contain multiple lines or an account has activity on both sides.
- Reversing the journal side. A journal debit must be posted as a ledger debit, not as an increase or decrease chosen from memory. Use the journal line to determine the side.
- Posting an entry total instead of its individual lines. In a compound entry, post each account’s amount, not the total debits or credits to every account.
- Ignoring the opening balance. A period’s postings change the existing balance; they do not replace it.
- Subtracting in a predetermined direction. Subtract the smaller side from the larger and label the resulting balance by the larger side.
- Leaving out references. Without dates or journal references, it is harder to confirm which transactions explain an account balance.
For instance, suppose an account has debit postings of $1,500 and $400 and credit postings of $900. A mistaken calculation might subtract the first credit from the first debit and report $600, overlooking the second debit. The correct calculation is total debits $1,500 + $400 = $1,900, less total credits $900, giving a $1,000 debit balance. Always total both sides before finding the difference.
Check Your Understanding
For each problem, calculate the ledger balance from the stated postings and opening balances. The answer follows the problem so you can check your work.
- A Cash account begins with a $6,400 debit balance. It receives debits of $1,250 and $900 and credits of $2,100 and $300. What is its ending balance? (Answer: $6,150 debit.)
- A hypothetical company records a $3,600 credit purchase of equipment parts and later pays $1,450 of that amount. What are the debit and credit postings to Accounts Payable, and what is its ending balance if it began at zero? (Answer: Credit $3,600, debit $1,450; ending balance $2,150 credit.)
- An Accounts Receivable ledger begins with a $2,200 debit balance. During the period, it is debited $800, credited $1,100, and debited $450. Find the ending balance. (Answer: $2,350 debit.)
- A journal entry debits Cash $2,400 and Supplies $600 and credits Service Revenue $2,000 and Accounts Payable $1,000. State every ledger posting and verify that the entry balances. (Answer: Cash debit $2,400; Supplies debit $600; Service Revenue credit $2,000; Accounts Payable credit $1,000; total debits and credits are both $3,000.)
- A liability account begins with a $900 credit balance. It receives a $1,500 credit posting and two debit postings of $700 and $250. Calculate its ending balance and identify the larger side. (Answer: $1,450 credit; credits total $2,400 and debits total $950.)