Post reference number accounting

We now have two pages of journal entries for NeatNiks that we have prepared during the month of October. A business doing bookkeeping by hand like this might transfer (post) entries from the journal to the ledger daily, weekly, or monthly, depending on who is doing the posting and how busy that person is with other duties, and when the information is needed. Posting is recording in the ledger accounts the information contained in the journal. Computerized accounting systems post immediately, which is one of the reasons most businesses rely on them, plus they never complain about the tediousness of their work.

You’ll probably never post from a journal to a ledger once you graduate with your accounting degree, but it’s important to know what is going on inside the invisible mind of your automated accounting system so you know two valuable things: (a) what data to put in and (b) how to tell if the reports you are getting from the computer make sense.

Remember the timeless adage about computers: garbage in, garbage out.

Here’s our completed journal through October 31:

Journal Page 1
Date Description Post. Ref. Debit Credit
20–
Oct. 1 Cash 20,000.00
Nick Frank, Capital 20,000.00
To record initial investment by owner and deposit to bank account
Oct. 4 Prepaid Rent 12,000.00
Cash 12,000.00
To record prepayment of rent on vehicle
Oct. 7 Supplies 2,600.00
Accounts Payable 2,600.00
To record purchase of supplies on account
Oct. 15 Cash 1,500.00
Service Revenue 1,500.00
To record cash received for services rendered
Oct. 20 Accounts Receivable 7,250.00
Service Revenue 7,250.00
To record cash billing for services rendered
Oct. 25 Insurance Expense 1,500.00
Contractor Expense 1,100.00
Cash 2,600.00
To record payment of October insurance and contractors
Oct. 26 Accounts Payable 1,000.00
Cash 1,000.00
To record payment account
Journal Page 2
Date Description Post. Ref. Debit Credit
20–
Oct. 30 Cash 1,600.00
Accounts Receivable 1,600.00
To record receipt of payments from customers on account
Oct. 31 Owner Withdrawal 4,000.00
Cash 4,000.00
To record payment to owner

Making a Chart of Accounts

Now we need the chart of accounts:

Reference Number Account
110 Cash
120 Accounts Receivable
125 Supplies
130 Prepaid Rent
210 Accounts Payable
220 Contractor Payable
310 Nick Frank, Capital
330 Nick Frank, Withdrawals
410 Service Revenue
510 Insurance Expense
520 Rent Expense
530 Supplies Expense
540 Contractor Expense

Notice that we have left space between the accounts to be able to add more when we need to (and that we only used three digits instead of 4, because this is a pretty small company).

Now we need to create a ledger page for each account, but for now, let’s just make two pages: 110 Checking, and 310 Nick Frank, Capital.

General Ledger Account: Cash Account No. 110 General Ledger Account: Nick Frank, Capital Account No. 310

Note that the opening balance is zero for both accounts since this is a new business.

Posting is a simple process. We take each journal entry, line by line, and methodically, carefully transfer the information to the appropriate ledger pages.

Here is the first entry posted to the ledgers:

General Ledger Account: Cash Account No. 110 General Ledger Account: Nick Frank, Capital Account No. 310

Note a couple of important items:

We update the running total (the balance)—more on that later.

And we do one last thing: we note the account number in the POST. REF. column of the journal, like this:

Journal Page 1
Date Description Post. Ref. Debit Credit
20–
Oct. 1 Cash 110 20,000.00
Nick Frank, Capital 310 20,000.00
To record initial investment by owner and deposit to bank account

Not only do these posting references provide cross-references for later, but they also let you track what you have posted so that if you get distracted for a moment, you’ll later know exactly where you left off.

Practice Questions

Now let’s take a closer look at that account balance and revisit T accounts.

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