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Posting to the General Ledger

Posting to the General Ledger

Author: Evan McLaughlin

Determine the accounts and amounts for a general ledger entry.

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Video Transcription

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Hey, everyone, and welcome to our video, today, on Posting to the General Ledger. So what's today's video all about? We're going to talk about two main things. We're going to review the general ledger, and then we're going to look at several general-ledger examples.

So let's start with the general ledger. That aggregates all accounting records within an organization, in preparation for financial statements. The general ledger serves as the accounting system where our entries are posted. And it contains entries from our general journal. So the general journal serves as the source for our general ledger. And it provides summary detail for all of our accounts, rolling balances. OK?

So let's look, starting with our first example, of a general-ledger transaction. Purchase $10,000 of equipment, for cash. So what accounts are involved? Well, we're going to have cash, paying for the equipment. And then we're also going to have equipment. So let's look at the general ledger.

So, again, this is what the ledger looks like. We have all those columns. And each account is going to have its own ledger. So we'll start with cash, and it has that unique identifier-- 1001-- which comes from our chart of accounts.

So let's look at the first date. And we're going to have our reference from our general journal. And, because we're paying cash, it's an asset; our cash is going down, so we're going to credit it. And there's going to be a $10,000 balance in cash.

And we also have equipment that we're purchasing. Same date; same reference. And, since it's an asset, and it's going up, we're going to debit our equipment. So equipment is also going to have a $10,000 balance.

Now let's look at our second transaction. Purchase $10,000 of equipment, on account. So which accounts are involved? Equipment, and accounts payable. OK? So we're buying equipment, but we're purchasing it on account. So accounts payable.

So let's look at those ledgers. First ledger; equipment. Same date. Reference. So this is a reference, again, from our general journal. And, since our assets are going up, we're going to debit equipment. So there's gonna be a $10,000 balance.

Next, let's look at accounts payable. So accounts payable is a liability. And, if it's going up, we're going to credit our accounts payable, so our accounts payable is also going to have a $10,000 balance.

Next transaction. A partial $5,000 payment, for equipment purchased on account. Which accounts are involved? Well, accounts payable, because we're making a payment on equipment that we purchased on account. And, because we're making a payment, our cash is also involved.

So let's take a look at the ledgers, starting with accounts payable. So now, that equipment that we purchased on account, OK, so we're each starting with that $10,000 credit from before. Now we're making a payment. We're going to make the payment on the same date. We'll look at our journal entry reference.

And, since we're making a payment, our liabilities are going to go down. And liabilities are decreased with debits. And so we have a $5,000 debit to accounts payable, which makes the balance in our accounts payable $5,000. So you see that rolling-balance idea, within the general ledger.

So now, let's look at our cash. Journal entry reference. And, since cash is an asset, and it's going down, there's going to be a $5,000 credit to our cash account, leaving a $5,000 balance.

OK. Standard of another transaction. Payment of $10,000 of equipment purchased on account. So, which accounts are involved? Again, accounts payable, as well as cash, is involved, similar to before. So let's take a look at those ledgers.

So accounts payable. Again, we had purchased that equipment on account. So now we look at making a full payment, for that equipment. So, if we had credited our accounts payable, before, we're paying it off, now. So debit our accounts payable, because it's a liability and it's decreased by a debit.

So now we can see that our balance, in our accounts payable, is zero. And then, for our cash, since it's an asset, and it's going down-- because we're making payment-- we credit our cash account. And there's a $10,000 balance.

Let's look at our next transaction. Withdrawal of $2,000 of cash, by owner. So which accounts are involved? We have owner's draws, as well as cash. So let's start with owner's draws.

So the owner is pulling money out of the business, so it's going to be a debit to our equity. It's decreasing our equity. So we're gonna have a $2,000 balance, in the owner draws. And now cash; cash is also going down, so it's going to be a credit, to cash, of $2,000.

Next transaction. So we're going to receive $20,000 of cash, for future services. So which accounts are involved? We have cash involved, because we're receiving cash, as well as deferred revenue. OK? So it's for future services; they have not been performed, yet. So let's take a look at that.

So we have cash. And, since cash is going up, it's an asset, and we're going to debit cash for $20,000. And then we also had deferred revenue, for services that we've received payment for but haven't performed, yet. And deferred revenue is a liability, and those are increased with credits, so we're going to put that $20,000 in our credit column, leaving a $20,000 balance in our deferred revenue.

One more transaction. Payment of $1,000 cash, for future expense. So which accounts are involved? A prepaid expense. So, since it's a future expense, we haven't incurred that expense yet, so it's a prepaid expense. And, since we're paying cash, our cash is involved.

So now we take a look at our general ledger, starting with our prepaid expense. Prepaid expense is an asset, so we're going to debit a prepaid expense for $1,000, leaving a $1,000 balance in our prepaid expense. And then we're going to look at cash. OK? So cash is an asset. And, since it's going down, because we're paying for prepaid expense, there's going to be a credit, to our cash, of $1,000, leaving a $1,000 balance, in cash.

Now, let's summarize. In a nutshell, we reviewed our general ledger. We looked at several examples involving cash, equipment, prepaid expense. We looked at accounts payable and deferred revenue. And we also looked at an example that had owners' draws.

I hope everybody enjoyed this video, and I hope to see you next time.