Ledger Illustration 4 with Journal Entries and Trial Balance

Ledger Illustration 4 with Journal Entries and Trial Balance
I.Com, B.Com, C.Com, D.Com, BBA, MBA, ACCA, ICMA, IBP, ACMA, Chartered Accountant.
The ledger A ledger (general ledger) is the complete collection of all the accounts of a company. The ledger may be in loose-leaf form, in a bound volume, or in computer memory.
Accounts fall into two general groups:
(1) balance sheet accounts (assets, liabilities, and stockholders' equity) and
(2) income statement accounts (revenues and expenses).
The terms real accounts and permanent accounts also refer to balance sheet accounts. Balance sheet accounts are real accounts because they are not subclassifications or subdivisions of any other account. They are permanent accounts because their balances are not transferred (or closed) to any other account at the end of the accounting period.
Income statement accounts and the Dividends account are nominal accounts because they are merely subclassifications of the stockholders' equity accounts. Nominal literally means "in name only". Nominal accounts are also called temporary accounts because they temporarily contain revenue, expense, and dividend information that is transferred (or closed) to the Retained Earnings account at the end of the accounting period.

The chart of accounts is a complete listing of the titles and numbers of all the accounts in the ledger. The chart of accounts can be compared to a table of contents. The groups of accounts usually appear in this order: assets, liabilities, stockholders' equity, dividends, revenues, and expenses. Individual accounts are in sequence in the ledger. Each account typically has an identification number and a title to help locate accounts when recording data.
For example, a company might number asset accounts, 100-199; liability accounts, 200-299; stockholders' equity accounts and Dividends account, 300-399; revenue accounts, 400- 499; and expense accounts, 500-599. Companies may use other numbering systems. For instance, sometimes a company numbers its accounts in sequence starting with 1, 2, and so on. The important idea is that companies use some numbering system. Now that you understand how to record debits and credits in an account and how all accounts together form a ledger, you are ready to study the accounting process in operation.

To begin, a transaction must be journalized. Journalizing is the process of entering the effects of a transaction in a journal. Then, the information is transferred, or posted, to the proper accounts in the ledger. Posting is the process of recording in the ledger accounts the information contained in the journal.
In the following example, notice that each business transaction affects two or more accounts in the ledger. Also note that the transaction date in both the general journal and the general ledger accounts is the same. In the ledger accounts, the date used is the date that the transaction was recorded in the general journal, even if the entry is not posted until several days later. Our example shows the journal entries posted to T-accounts. In practice, firms post journal entries to ledger accounts.
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