The third step in the accounting cycle is posting transactions from the journal to the ledger.
This is a process of copying data from the journal
to the ledger, which an accounting we show as the T account.
Recall that debits are always on the left and credits are always on the right.
The process of posting is fairly straightforward,
in fact, I would suggest that you overthink the process.
It starts with identifying the debit account and the amount from the journal.
Then find that account in the ledger.
Record the amount as a debit or on the left side of the account.
Then do the same thing for the credit account. Identify the credit account and amount,
find that account in the ledger,
and finally record the amount as a credit or on the right side of the account.
Let's look at this example.
We have a journal entry where we've debited accounts receivable for $2000
and credited its service revenue for $2000. The date is January 5.
In the ledger, will need to find the accounts receivable account and the service revenue account.
Then identify the debit account, which is accounts receivable.
The amount of the debit - $2000.
so in a letter for accounts receivable we will post for record $2000 to the debit side like this
Make sure to include the date or some reference to the journal transaction.
Now let's post the credit.
Identify the credit account, which in this case the service revenue,
the amount of the credit, $2000.
So in the ledger for service revenue we will record or post $2000 to the credit side, like this.
And don't forget the date.
So now you can see that the amounts from the journals have been posted in the ledger.
The importance of this step is to make sure that all similar transactions are recorded in the same place.
If you were an accountant for this company and you wanted to know how much service revenue your company had for a month,
without the step, you would have to go through every single journal entry in the general journal looking for those that affected revenue.
That will be quite time consuming, even for the smallest of businesses.
Okay, let's look at the three previous examples and put this step in context of the accounting cycle.
In this example, a company bought supplies for $500 on account. The date was August 3.
So we analyze the transaction and we jounalized it like this. Now we need to post this to the ledger.
Supplies is the debit account and the amount is $500, so we post $500 and the date to the deibit side of the supplies account.
Accounts payable is the credit account and the amount is also $500.
So we post $500 and the date to the credit side of the accounts payable account.
In this next example, a company performs service on account for $2500.
The date is August 9.
Accounts receivable is the debit account and the amount of $2500, so we post $2500 and the date to the debit side of accounts receivable.
The service revenue is the credit account and the amount is $2500.
So we post $2500 and the date to the credit side of service revenue.
In the final example, a company pays a utility bill for $200. The date is August 15th.
Utilities expense is a debit account and the amount is $200.
So we post $200 and the date to the debit side of the utility's expense account.
Cash is the credit account and the amount is $200, so we post $200 and the date to the credit side of the cash account.
Finally, let me add these first three steps to the accounting cycle are repeated over and over again during the month.
The remainder of the accounting cycle all happens at the end of month
but more on that in future videos.