What is Posting in Accounting?
Posting in accounting refers to the transfer of balance from one ledger to the general ledger to make it easy to understand the accounting, and this posting in accounting is done at regular intervals, i.e., monthly, quarterly, half-yearly, or yearly depending upon the size of entity and volume of transactions of the entity.
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It refers to the transfer of closing balance from various accounts to the general ledgerGeneral LedgerA general ledger is an accounting record that compiles every financial transaction of a firm to provide accurate entries for financial statements. The double-entry bookkeeping requires the balance sheet to ensure that the sum of its debit side is equal to the credit side total. A general ledger helps to achieve this goal by compiling journal entries and allowing accounting calculations. . The posting varies as per the size of the organization and the volume of transactions. Some large organizations record the monthly closing balance. The balance is directly transferred to a general ledger for small organizations because of the low volume of accounting transactionsAccounting TransactionsAccounting Transactions are business activities which have a direct monetary effect on the finances of a Company. For example, Apple representing nearly $200 billion in cash & cash equivalents in its balance sheet is an accounting transaction. .
This is also done where there are several branches of the organization, and separate accounts of branches are maintained or when the parent companyParent CompanyA holding company is a company that owns the majority voting shares of another company (subsidiary company). This company also generally controls the management of that company, as well as directs the subsidiary's directions and policies. maintains the accounts of its subsidiarySubsidiaryA subsidiary company is controlled by another company, better known as a parent or holding company. The control is exerted through ownership of more than 50% of the voting stock of the subsidiary. Subsidiaries are either set up or acquired by the controlling company. or associate company. It is more of a manual process and involves workforce work. In the case of posting, consolidation of accounts is also required. With the advancement of technology, posting has become a traditional process, and it is rapidly eliminated due to the availability of automated software.
Steps in Posting in Accounting
Steps in posting involve the following:
Step #1 – Create the Sub-Ledgers and General Ledgers with Various Transactions
Various accounts and transactions are to be recorded in their respective ledgers.
Step #2 – Create the General Ledger
The general ledger is the ledger in which balances of all sub-ledgers and general journals are to be transferred.
Step #3 – Enter the Name and Account in General Ledger with Details
Transfer in general ledger takes place with the name of the account and amount carried forward in subledgerSubledgerA subledger is a subset of several general ledgers used in accounting that may include all accounts receivable, payable, prepaid expenses, or fixed assets associated with financial transactions. It is extremely difficult to keep track of all transactions in a large organization's common ledger; therefore, a subledger is the ideal solution for recording entire transactions. or general journal along with entry details.
Step #4 – Enter the Debit and Credit Balances in the Ledger
Debit and credit balances are to be entered into the general ledger as per the balance in the account. The debit balanceDebit BalanceIn a General Ledger, when the total credit entries are less than the total number of debit entries, it refers to a debit balance. A debit balance is a net amount often calculated as debit minus credit in the General Ledger after recording every transaction. increases the asset, whereas the credit balanceCredit BalanceCredit Balance is the capital amount that a company owes to its customers & it is reflected on the right side of the General Ledger Account. Usually, Liability accounts, Revenue accounts, Equity Accounts, Contra-Expense & Contra-Asset accounts tend to have the credit balance. increases the liability in the accounts.
Step #5 – Maintain the Account for each Period Separately
The general ledger for each period is to be maintained separately to avoid double balancing or mess in the accounts.
Step #6 – Correct any Errors
The final step is to cross verify the balances and recheck whether there are any mathematical errors; if any of the errors are found, rectify them to maintain proper records.
Posting in Accounting Examples
The details of XYZ internationals are as under:
XYZ international issues 20 invoices to its customers and records each transaction in the sales account and the respective debtor’s account. Also, the company purchased from 10 suppliers the records in purchases accounts and respective creditors’ accounts. In addition, some of the payable liability is recorded in the general journal account. The details are as under:
Prepare General Ledger.
- Posting in a ledger to be made in a chronological manner, i.e., date-wise.
- While posting in the ledger, entry is to be made into both accounts, i.e., double entriesDouble EntriesThe double-entry accounting system refers to the double effect of every journal entry. It is based on the dual aspect i.e. Debit and Credit and this principle states that for every debit, there must be an equal and opposite credit. are to be made. For example, in the case of the purchase on credit, the entry is to be made in the purchase account and the creditor’s account.
- The amount is to be shown in the amount column, the debit balance is to be debited, and the credit balance is credited on the credit side.
- The balance in the nominal accounts must be transferred directly to the profit and loss accountProfit And Loss AccountThe Profit & Loss account, also known as the Income statement, is a financial statement that summarizes an organization's revenue and costs incurred during the financial period and is indicative of the company's financial performance by showing whether the company made a profit or incurred losses during that period..
- Assets are to be debited, and liabilities are to be credited.
- Balance can be Easily Verified – With the posting in the accounts, the balances of each account can be easily known as on the date. It creates a clear understanding of the account balances and reduces the efforts of finding from each ledger account.
- Ensures Smooth Running of Business – Posting of Balances ensures the smooth running of the business as posting balances can be easily tracked and called for. Cross-verification and arithmetical accuracy are to be rechecked.
- Helps to keep Updated Records – It helps to keep an updated record of all ledger balances & also helps to keep tracking of the balances on how they changed over time.
- Can be Easily Analyzed – As the balance of the ledger accounts can be changed with the recording of various transactions, if the balance is the same for a continuous period, one can analyze the account and request for clearance of balance or record it as bad debtsBad DebtsBad Debts can be described as unforeseen loss incurred by a business organization on account of non-fulfillment of agreed terms and conditions on account of sale of goods or services or repayment of any loan or other obligation..
Posting in the ledgerLedgerLedger in accounting records and processes a firm’s financial data, taken from journal entries. This becomes an important financial record for future reference. It is used for creating financial statements. It is also known as the second book of entry.is the accounting process. The balances of the general journal and various sub-ledgers are to be transferred at various intervals, ranging from daily to yearly. It is very helpful and useful in large organizations, as keeping track of the balance becomes very easy. Also, with the posing in a ledger, the arithmetic accuracy of the accounts can be verified, and the balances can be analyzed thoroughly to maintain the proper and accurate records.
Posting in the ledger is a manual process; hence workforce is needed. It ensures that all assets and liabilities are to be recorded properly. The balances of nominal accounts are directly transferred to the profit and loss account. The balances related to balance sheet items are to be transferred to the general ledger account. It helps keep the updated records, but with the advancement of technology and the availability of various software, the posting in balance has become the traditional concept.
This has been a guide to What is Posting in Accounting & its Definition. Here we discuss the step to calculate the posting in accounting and examples and rules and importance. You can learn more about it from the following articles –