Accounting Fundamentals | Posting to the Ledger

Mark Farber: Hi, I’m Mark Farber and this
is Accounting Fundamentals. Today what we’re going to do is we’re going
to take the transactions that we put into the journal in the last video and we’re going
to post them to the ledger. Now, remember what we said; when we put the
entries into the journal and have abbreviated them over here we can see the first one was
a debit to cash of $5000, credit to capital, debit equipment 2000, credit cash 2000, so
on and so forth. Those are the five transactions that we’ve
been looking at so far. The problem that we have is that if you wanted
to know how much cash the company had you’d have to go through and start saying, okay,
well, here’s a debit to cash, so that’s plus 5000, and here’s we’ve credited cash, that’s
minus 2000, so that’s 3000 net, and then we credit cash 2000. So I’m down to $1000 in cash. Well again, imagine doing that for a really
big company. You’re working at Apple and somebody says,
“How much cash do we have,” and you have to go through a list of millions of these things
to figure out how much cash the company has. So we need a way of keeping track of it. The way that we do it is in a bunch of accounts
called the “ledger.” Now, you can go and look at what an actual
ledger account looks like when it’s formally written, but one way that we keep track of
ledger accounts is using T accounts. Remember we looked at those before. We have a T account for each one of our accounts,
so cash, accounts receivable, equipment, rent expense, revenue, etc. What we’re going to do … All that posting
means is it means that we’re going to take the information in our journal and we’re going
to record it in the T accounts. You’ll see how that allows us to keep track
of how much we have. So let’s go through very quickly and do that. The first transaction we have a debit to cash
of $5000. So debit remember is the left side of the
T account. I’m just going to put 5000 over here, and
I’m going to put a little one next to it. That corresponds to this being transaction
number one. Just in case I want to know where that $5000
came from, I can always go back to my journal and see that it was transaction number one
and referred to this transaction over here. Then we have a credit to capital of 5000. We have to be really careful; credit is on
the right-hand side, 5000. And again, I’ll put a little one there. Just to note that it’s transaction number
one. Then I check it off to show that I’ve done
it. We just keep doing. So debit equipment $2000 … 2000 … and
I’ll put a little two. And credit cash $2000 … 2000 and a little
two. Nothing harder than that. That’s all that posting is really. In fact, in a computerized accounting system
when journal entries are created they tend to get posted immediately, but in the old
days when this was all done with paper and pencil you had to go through this process. Debit rent expense $2000. So we’ll find our rent expense account … $2000,
and that’s transaction three. And credit cash $2000. So again on the right-hand side, 2000. That’s a number three. Check it off. Debit accounts receivable $3000. So it’s over here. I’m just going to write it down here just
give myself some room. That’s transaction number four. And credit revenue $3000. Transaction number four. Check it off. Finally, we’re going to debit withdrawals
500, and we’re going to credit cash 500. Now we’ve posted all of these. Well, we can now kind of ignore this. It doesn’t go away. It stays there in the journal, but now we
can focus our attention over here. We can see that accounts receivable there’s
$3000. We can very quickly see that the company has
$3000 owing to it. It has $2000 of equipment. It’s earned $3000 of revenue and so forth. Generally, there’ll be a lot more transactions
then just one in a T account. So what we do when there’s more than one is
we draw a line at the point that we want to calculate how much we have of a particular
account. In this case we’ll do cash. We add up the left side; 5000. And we add up the right side, so 2000, 4000,
500. So it’s $5000 of debits and $4500 of credits. Then what we do is we subtract thee smaller
number from the larger one. So 4500 we’re going to subtract from 500. That gives us a net amount of 500. We create another line and we write it on
the side of the larger amount. So because there was more debits than credits
what we say is that we have $5000 of debits, minus 4500 of credits, leaves a balance of
$500 of debits. In other words, the company has $500 of cash,
and we can see that very easily from our ledger accounts. Now that we’ve seen how we do ledgers, what
we need to understand is, okay, remember what we said, the accounting equation always has
to be in balance. We knew it was in balance here because for
each transaction we can see the debits are equal to the credits. Of course, over here we can’t see that anymore. Here’s a credit of $3000 and unless you
want to go looking through all your accounts to find the corresponding debit, which is
over here, then you’ll never know if you’re still in balance or not. What if you made a mistake? We can’t afford to make mistakes here. What we’re going to see in the next video
is how we reconcile that, how we make sure that once we’ve copied everything over to
our ledger accounts, and we’ve calculated the balance in each of these ledger accounts,
how do we make sure that it’s still in balance, that the accounting equation still holds. We’ll see that in the next video.

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