Recording Transactions: Posting and Trial Balance

The Story of Your Money’s Journey 📚

Imagine you have a magical notebook where every penny you spend or receive gets written down. But here’s the thing—just writing it down once isn’t enough! You need to organize it, sort it, and check that everything adds up perfectly.

That’s exactly what posting and trial balance is all about!

Think of it like this: You’re the manager of a toy store. Every time someone buys a toy or you get new toys from a factory, you write it in your notebook. But if you just wrote everything in one messy list, you’d never find anything! So instead, you organize everything into neat sections—one for toys, one for money, one for what people owe you.

🏠 The General Ledger: Your Master Filing Cabinet

What is a General Ledger?

The General Ledger is like the BIGGEST, most important filing cabinet in your entire office. It holds ALL the information about your money—organized into different drawers.

Simple Example:

• Drawer 1: Cash (all the money you have)
• Drawer 2: Things People Owe You
• Drawer 3: What You Owe Others
• Drawer 4: Money from Sales
• Drawer 5: Money Spent on Expenses

Each drawer is called an account. And the whole filing cabinet? That’s your General Ledger!

┌─────────────────────────────────────┐
│         GENERAL LEDGER              │
│   (The Master Filing Cabinet)       │
├─────────────────────────────────────┤
│  📁 Cash Account                    │
│  📁 Accounts Receivable             │
│  📁 Inventory Account               │
│  📁 Sales Revenue Account           │
│  📁 Rent Expense Account            │
└─────────────────────────────────────┘

Real Life Example

You run a lemonade stand. Your General Ledger has:

• Cash Account: Shows you have $50
• Supplies Account: Shows $20 worth of lemons
• Sales Account: Shows you earned $100 this week

Every account in the General Ledger shows the complete history of that one type of thing!

📮 Posting to Ledger: Moving Information to Its Home

What is Posting?

Posting is like taking a note from your pocket and filing it in the right drawer of your filing cabinet.

When you first record a transaction (like “Sold lemonade for $5”), you write it in a journal. But that journal is just temporary! Posting means taking that information and putting it in the permanent home—the General Ledger.

Think of it like this:

1. You write a sticky note: “Got $5 from selling lemonade”
2. You walk to your filing cabinet
3. You put that sticky note in the “Cash” drawer
4. You also put a copy in the “Sales” drawer

That’s posting!

Step-by-Step Posting

JOURNAL ENTRY:
March 1: Sold goods for $500 cash

↓ POST TO LEDGER ↓

CASH ACCOUNT
Date: March 1
Debit: $500 ✓

SALES ACCOUNT
Date: March 1
Credit: $500 ✓

Why Do We Post?

📚 Subsidiary Ledgers: The Helper Books

What are Subsidiary Ledgers?

Imagine your General Ledger has a drawer called “What Customers Owe Me” (Accounts Receivable). But you have 100 customers! How do you know who owes what?

Subsidiary Ledgers are like mini-notebooks that give you the details!

Simple Analogy:

• General Ledger says: “Customers owe you $1,000 total”
• Subsidiary Ledger says: “Sarah owes $300, Mike owes $500, Emma owes $200”

graph TD
    A[General Ledger] --> B[Accounts Receivable: $1,000]
    B --> C[Subsidiary Ledger]
    C --> D[Sarah: $300]
    C --> E[Mike: $500]
    C --> F[Emma: $200]

Common Subsidiary Ledgers

1. Accounts Receivable Subsidiary Ledger

   • Lists each customer who owes you money
   • Shows how much each one owes

2. Accounts Payable Subsidiary Ledger

   • Lists each supplier you owe money to
   • Shows how much you owe each one

Example

Your bakery has these customers who owe money:

The General Ledger shows: Accounts Receivable = $450

The Subsidiary Ledger shows the breakdown above!

📔 Special Journals: Shortcuts for Busy Days

What are Special Journals?

When you do the same type of transaction over and over, writing it out each time is BORING and SLOW!

Special Journals are like express lanes at the grocery store—designed for specific, common transactions.

The Four Main Special Journals

1. Sales Journal 📦

   • Only for credit sales (when customers promise to pay later)
   • Example: “Sold $200 of goods to ABC Company on account”

2. Purchases Journal 🛒

   • Only for credit purchases (when you promise to pay later)
   • Example: “Bought $500 of inventory from supplier on account”

3. Cash Receipts Journal 💰

   • Only for money coming IN
   • Example: “Received $300 cash from customer”

4. Cash Payments Journal 💸

   • Only for money going OUT
   • Example: “Paid $400 to supplier”

Why Use Special Journals?

WITHOUT Special Journals:
Write full entry for every sale (takes forever!)

WITH Special Journals:
Just add one line in Sales Journal (super fast!)
Post totals at end of month (saves time!)

Example: Sales Journal

At month end, you post just ONE entry: Accounts Receivable $1,000 / Sales $1,000

⚖️ Trial Balance: The Big Check-Up

What is a Trial Balance?

A Trial Balance is like checking your math homework before turning it in!

Remember: Every transaction has a debit and a credit that must be equal. The Trial Balance checks if ALL your debits equal ALL your credits.

Simple Rule:

Total Debits MUST equal Total Credits

If they don’t match, something went wrong somewhere!

How to Create a Trial Balance

1. List ALL accounts from your General Ledger
2. Write the balance of each account
3. Put debits in one column, credits in another
4. Add up both columns
5. They should be EQUAL!

Example Trial Balance

╔═══════════════════════════════════════╗
║         TRIAL BALANCE                 ║
║         March 31, 2024                ║
╠═══════════════════╦═════════╦═════════╣
║ Account           ║ Debit   ║ Credit  ║
╠═══════════════════╬═════════╬═════════╣
║ Cash              ║ $5,000  ║         ║
║ Accounts Receivable║ $2,000  ║         ║
║ Equipment         ║ $3,000  ║         ║
║ Accounts Payable  ║         ║ $1,500  ║
║ Owner's Capital   ║         ║ $6,000  ║
║ Sales Revenue     ║         ║ $4,500  ║
║ Rent Expense      ║ $1,000  ║         ║
║ Salary Expense    ║ $1,000  ║         ║
╠═══════════════════╬═════════╬═════════╣
║ TOTALS            ║ $12,000 ║ $12,000 ║
╚═══════════════════╩═════════╩═════════╝

✅ Debits = Credits = BALANCED!

What if Trial Balance Doesn’t Balance?

🎯 Putting It All Together

Here’s how everything connects:

graph TD
    A[Transaction Happens] --> B[Record in Journal]
    B --> C{What type?}
    C -->|Sales on Credit| D[Sales Journal]
    C -->|Purchase on Credit| E[Purchases Journal]
    C -->|Cash In| F[Cash Receipts Journal]
    C -->|Cash Out| G[Cash Payments Journal]
    C -->|Other| H[General Journal]
    D --> I[Post to General Ledger]
    E --> I
    F --> I
    G --> I
    H --> I
    I --> J[Update Subsidiary Ledgers]
    J --> K[Prepare Trial Balance]
    K --> L{Does it Balance?}
    L -->|Yes| M[✅ Ready for Reports!]
    L -->|No| N[🔍 Find the Error]

🌟 Key Takeaways

1. General Ledger = The master book with ALL accounts
2. Posting = Moving journal entries to the ledger
3. Subsidiary Ledgers = Detail books for customers/suppliers
4. Special Journals = Quick-entry books for common transactions
5. Trial Balance = Checking that debits equal credits

💡 Remember This Forever

“The General Ledger is your filing cabinet. Posting is filing your papers. Subsidiary Ledgers show the details. Special Journals save you time. And the Trial Balance makes sure nothing got lost!”

You’ve got this! Every big business in the world uses these exact same concepts. Now you understand them too! 🎉