Summary
Highlights
The video introduces the third step of the accounting cycle, which is posting to the ledger. It defines the ledger as the second book used in accounting, following the journal. The ledger groups an entity's accounts, unlike the journal which records transactions chronologically. It's known as the 'reference book' of the accounting system because it provides a summarized view of account balances, which the journal cannot. The ledger classifies and summarizes transactions to prepare data for financial statements.
Each account in the ledger has its own record. The basic format of a ledger account is the 'T-account,' which visually separates debits and credits on the left and right sides, respectively. While similar to the journal, the ledger organizes information by account, providing a classified and summarized view necessary for financial statements, whereas the journal captures original transactions chronologically.
The first step in working with a ledger is 'posting.' Posting means transferring information from the journal to the ledger. This process establishes a connection between the journal and the ledger, filling in the 'posting reference' in the journal. The video emphasizes that posting is a mechanical process, involving direct transfer of debit amounts from the journal to the debit side of the ledger, and credit amounts to the credit side, without requiring deep analysis. It suggests that this mechanical aspect is why some believe computers can automate this part of accounting.
The second step is 'footing,' which involves adding all the debit entries and all the credit entries within a specific ledger account. This is a technical term in accounting, meaning to sum up the columns.
The final step is 'balancing,' which means determining the final balance of an account. This involves comparing the total debits and total credits. If the sum of debits is higher, the balance is a debit balance. If the sum of credits is higher, the balance is a credit balance. The balance is the difference between the higher and lower totals. The video clarifies that 'balance' is a more appropriate term than 'total' when finding the difference between two sums.