Various Steps in Posting Teaching Procedures in Posting

To be able to make an efficient use of information available with him, a businessman has to keep some more records in addition to the records available to him in journal. For such information he makes use of the device known as posting into the proper ledger accounts.

The postings from journal accounts to ledger accounts makes it possible for the businessman to know how much does a particular customer over him on a particular date. In a similar way much other useful information can be obtained by proper postings in the ledger accounts. Thus it is necessary to post the entries of journal to the ledger accounts. The transference of entries from journal to indi­vidual accounts is known as posting.

Journal is known as ‘the book of original entries’ and Ledger is known as ‘the book of final entries’. The proper form of account is the ‘T’ form account. The left side of’ form account is known as ‘debit side’ and the right side of” form account is known as ‘credit side’.

Difference between ‘T’ form account and the ledger account

The ‘T’ form account contains only the left side and the right side of the account. It contains no more information’s. The ledger account has many different columns to provide for more information’s, i.e. Date, Explanation, L.F., and the Amount columns on both sides of an account.

Various Steps in Posting Teaching Procedures in Posting

STEP: 1 Write the same amount of the transaction in the journal to the particular ledger account first. By writing first the amount in the ledger, there are less chances of committing an error.

STEP: 2. Write the year, month and the date in the date column next.

STEP: 3 Write the explanation in the explanation column. Write the balance at the end in order to distinguish it from the open­ing balance.

STEP: 4 Write the letter ‘J’ in the ledger reference column. And the letter ‘L’ in the journal reference column. The page and the account numbers are referred to as ‘Post marks’.

STEP: 5. Go back to journal and make post-reference in the journal.

Uses of Post-marks

1. It certifies whether the item has been posted or not.

In Book-keeping cycle it is the third step (First being ‘Journal’ and second being ‘Posting’). The accuracy of posting is checked after all the entries from ‘journal’ have been posted in ‘Ledger’. In this pro­cess balance of the account is determined. The balance on the account can be found by determining the difference between the entries on the ‘debit side’ and the ‘credit side’ in case all the entries are only either on ‘debit side’ or ‘credit side’ then the balance of the account will be the total of the entries, but in those cases in which entries are on both sides of the account, then both sides of account are totaled. To find the difference the smaller amount of any side is substracted from the larger amount of the other side. This balance obtained is then written on that side whose amount was smaller.

It may be noted that asset accounts have always debit balances and liability and proprietorship accounts have always credit balances.

Preparing trial balance

Procedure of teaching

Find out the equality of debit and credit balances. In case all the entries from ‘journal’ have been posted correctly in ‘Ledger’ then total debit balance is equal to total credit balance.

Make a proof of the ledger balances by preparing a trial balance. Make a list of debit balances and list of credit balances under each account heading

Purpose of Trial Balance

(i) The basic purpose of trial balance is to confirm the correct­ness and accuracy of the ledger account. The heading of the trial balances indicate ‘who’, ‘what’ and ‘when’ the ac­count balances are listed

(ii) The other purpose of trial balance is to find out on error in posting from ‘journal’ to ‘ledger’. In case the two sides of a ledger do not agree the following possibilities are there:

(a) Some entry has not been post referenced.

(b) Some entry has been posted twice.

(c) Some entry has been transferred from debit to credit side or credit to debit side.

(d) A totaling mistake either on debit or on credit side.

(e) An arithmetical error committed in subtracting the amount either from debit to credit or from credit to debit side.

Various Steps in Book-keeping first Step – Journalising. Second Step – Ledger posting Third Step – Preparing Trial Balance.

The errors in trial balance exist if the credit and debit side do not agree.

How to Locate Errors

Teaching Procedures

Start from last activity of the trial balance work back step by step and continue it till the error has been located.

Steps in locating errors

Step 1: Check both the credit and debit columns of trial balance to confirm that there is no error. If no error is found then proceed to step 2.

Step 2: Check the balance of the ledger accounts and see that they have been correctly written in trial balance.

Step 3: Check-up the balances of the ledger accounts.

Step 4: Check-up the addition of debit and credit items of each account.

Step 5: Determine the difference between the debit and credit totals of the trial balance. Make a look at the journal and ledger accounts to find if there is an entry of the amount equal to ‘ the amount of an error. Check up each and every entry to make sure that they have been posted correctly. In case some item amounting to Rs. 100 has either been not posted or has been posted twice then there will be a discrepancy of Rs. 100 in trial balance.

Step 6: Divide the difference of trial balance by 2 and search through the ledger account and journal for the same amount. If there is a difference of Rs. 200 between the debit and credit totals then on dividing it by 2 we get Rs 100, Find out if there is any item of Rs. 100 that might have been posted either in debit side instead of credit side or on credit side instead of debit side.

Step 7: For trial balance differences of Rs. 1, Rs. 10, Rs 100, Rs. 1000 thoroughly check up all the totals.

Step 8: Divide the deference of trial balance by nine and in case difference is divisible by 9 it indicates that you have trans­posed some figures i.e. An item of Rs 143 has been posted as Rs. 134 or an item of Rs 197 has been posted as Rs. 179 etc.

Step 9: As a last resort check back all the postings to the Journal.

Closing entries

A closing entry is a periodic entry, which has the effect of balancing all accounts relating to expense and income by transferring their balances. Closing entries are made after adjusting the entries. The main purpose of closing entry is :

(i) To bring ledger accounts into agreement with financial state­ments.

(ii) To provide accounts for recording transactions for the next fiscal period.

Some illustrations of closing entries are:

(i) When the full payment of an account from a customer is received by businessman, this entry closes and balances the customer’s account.

(ii) When a person draws the entire money from his bank ac­

count and closes his account with the bank.

(iii) When a particular asset is completely sold by a business man then also the entry for it is called closing entry.

Please note that reversing entry is also known as closing entry.

Purposes of Making a Closing Entry

The closing entries are generally made, for the following pur­poses :

(a) To find out a change, that occurred in the capital share.

(b) To prepare P&L statement from the temporary income or expense accounts, the sales account, the income-received account, the purchase accounts.

(c) To know the present position of a particular asset or a liability or the capital on a specified d°te.

(d) To enable the person to know how actually the changes in the account occur resulting in profit or loss.

Every business man likes to know about the position of his business in the beginning of the year and the position at the end of the period. For this he adopts a technique and that is the closing entries and adjusting entries, which depict this picture.

Procedures adopted for closing entries

1. Closing Accounts Directly to the Capital Account

Income and expense accounts are simply the sub-divisions of the capital accounts. Therefore, their balances are transferred to the capital accounts. This enables anyone to know the relationship that exists between the income and expense accounts and capital accounts.

2. Using P & L Summary for closing entry purposes

This procedure may be used after transferring the income and expense accounts to the capital accounts. After this, the drawing account is also introduced