Accounting Journals and Ledgers - Transaction Posting

Posted in 4. Ledgers and Journals by Erin Lawlor on the September 19th, 2008
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Statement
The process of gathering and storing Financial Transaction data in the Accounting System is
accomplished through the use of both:

Ledgers: which maintain Account Balances

Journals: which maintain the line by line detail of each Transaction.

Ledgers:
Im starting with Ledgers because weve gone through the basic organization of the Accounting
System from Double Entry (debit/credit) Transaction Posting, to the Chart of Accounts and
finally the General Ledger. Ill stay on the topic of the General Ledger first and then back up to
the Journals where each transaction is originally posted.
In Accounting, there are two types of Ledgers, the General Ledger (Book of final entry) and
Subsidiary (Sub) Ledgers. The Accounts for the General Ledger come from the Chart of
Accounts. The Accounts for the Subledgers depend on the specific purpose of the Subledger.
If you remember in the Chart of Accounts - Basics, I said that Accounts should only be created
to describe types of things not individual things themselves. Well, in some cases especially in the
case of cash substitutes like Accounts Payable and Accounts Receivable more detail is required.
So, to maintain the summary nature of the Chart of Accounts/General Ledger and to provide
more detail, Subsidiary (Sub) Ledgers were developed.
Everything that is posted into Subledgers is also posted into the General Ledger and they act
together to provide progressive levels of detail/summary.
The two most common Subledgers are:

The Accounts Payable Subledger: which maintains a list of Vendors (or creditors) and
their individual Account Balances. Each individual Vendor represents a Subledger
(Accounts Payable - Vendor) Account.
The Accounts Receivable Subledger: which maintains a list of Customers and their
individual Account Balances. Each individual Customer represents a Subledger
(Accounts Receivable - Customer) Account.

Each Subledger relates directly to a General Ledger Account that requires more detail than the
General Ledger can offer. These GL Accounts are often referred to as control accounts. The
Balance of a Control Account should always be equal to the total of its related Subledger
Account Balances. As you can see, the total of the Accounts Payable Subledger below equals the
Balance of the related General Ledger Accounts Payable Account.

General Ledger
Accounts Payable Subledger
AccountDescription
Debits Credits AccountDescription
Balance
1000
1200
1500
1520
2000
4000
7000
7020
7040
7060
7100

Checking Account
Accounts Receivable
Office Equipment
Office Furniture
Accounts Payable
Sales
Rent
Office Supplies
Subscriptions
Utilities
Fuel
Repairs and
7200
Maintenance
Credit Card Interest
7300
and Fees

$44,350
$0
$1,300
$1,650

Totals

$51,700 $51,700

Ace Credit Card

Corp.
Johnson
JOHN
Management
SHEL Shelton Oil

ACEC

$1,700
$50,000

Totals

$3,000
$150
$300
$125
$275

(see GL Account
2000)

$1,700
$0
$0
$1,700

$500
$50

The listings above are Ledger Account summaries. Both the General Ledger and the Subledgers
actually have a more detailed section for each Account. Those sections include summarized
entries and balances along with references indicating which journals those entries originated in.
The tables below show an example of a Subledger Account and an example of the corresponding
General Ledger Account.
Account:
ACEC

Accounts Payable Subledger

Transaction
Jrnl RefDescription
Date
Beginning Balance
8/01/08
AP 23123_0808 (invoice)
8/31/08
CD 37123_0808 (payment)
9/01/08
AP 55123_0908 (invoice)

Debit

$2,500
$2,500
$1,700

$0
$2,500
$0
$1,700
Account:
2000

General Ledger
Transaction
Jrnl RefDescription
Date

Credit Balance

Debit

Credit Balance

8/01/08
8/31/08
9/01/08

Beginning Balance
Accounts Payable
AP 23
Invoices
CD 37Cash Disbursements
Accounts Payable
AP 55
Invoices

$0
$2,500

$2,500

$2,500

$0
$1,700

$1,700

Because there can be multiple Subledgers, there are also multiple Journals. The Jrnl field
indicates which journal the entry came from. The APs in the jrnl field mean that those entries
came from the Accounts Payable Journal and the CD entry came from the Cash Disbursements
Journal which is the journal that maintains detail for Cash Outflows. The Jrnl and Ref field
together give a cross reference that enable the user to access more detail about each entry.
Journals:
All financial transactions are recorded in Journals. The Journal maintains each individual
transaction line by line. Just as there are two types of Ledgers, there are also two types of
Journals: The General Journal and the Subsidiary Journals. Most entries will originate in
Subsidiary Journals, however, if none of the GL Accounts affected by an entry have a related
subsidiary journal, the entry will originate in the General Journal.
Everything that is posted into Subsidiary Journals is also posted into the General Journal.
Journals act together with Ledgers to provide progressive levels of detail/summary.
Subsidiary Journal:
The format for Transactions in the the Subledger Journals is similar to the format for the General
Journal that Ive used in previous posts except they require at least three more columns in the
grid. One for the Subledger Account, one for an Invoice Number and one for a Reference
Number. This entry in the Accounts Payable Journal shows the detail for the both of the Ledger
entries above that indicate Jrnl = AP and Ref = 55.
This entry records A Credit Card Statement into Accounts Payable, which includes the purchase
of a Chair and a Desk along with Credit Card charges.
Accounts Payable Journal
Subledger
Transaction
GL
Invoice #
Ref
Description
Account
Date
Account
ACEC
123_908
9/01/08
55 2000 Ace Credit Card Corp.
1520 Chair
1520 Desk
Credit Card Interest &
7300
Fees

Debit

Credit
$1,700

$750
$900
$50

Note that the Vendor Account, the Invoice #, Transaction Date and Ref# are not re-entered for
each line. It is assumed that those three items remain the same for each of their balancing entries.
** Important: Individual transactions for each Subledger Account must have a unique
identifying number, in this case, its an Invoice Number. That number combined with the
Subledger Account creates a unique pair that prevents duplicate payments and provide a way for
each party to reference the transaction for payments or if disputes or questions arise.
General Journal:
Since the system requires that all financial transactions have an entry in the General Ledger, they
must also have an entry in the General Journal. This requires some duplication of effort but it is
necessary. So, once the entries are posted to the Subledger Journals, they are then summarized
and posted to the General Journal after which the Balances in the General Ledger are updated.
General Journal
Transaction
Jrnl Ref AccountDescription
Date
9/01/08
AP 55 1520 Furniture & Fixtures
9/01/08
AP 55 7300 Credit Card Interest & Fees
9/01/08
AP 55 2000
Accounts Payable

Debit

Credit

$1,650
$50
$1,700

The Path of entries for Financial Entries:

Transactions containing a GL Account that is related to a subsidiary journal start with the
Subsidiary Journal otherwise they start with the General Journal
Subsidiary Journal > Post to Subsidiary Ledger by its Account > Post to General Journal ->
Summarize and post to General Ledger by GL Account.