We have explained about debiting and crediting transactions in the previous post. In reality, rather than directly entering transactions into accounts, we enter transactions into a book called the journal in a chronological order. The journal shows the effect of debit and credit amounts on specific accounts. The act of entering transactions into the journal is called journalizing.
|Date||Accounts & Explanation||Debit||Credit|
（Sale of goods）
For each transaction, we enter the date, debit account name and amount, credit account name and amount, as well as a brief explanation.
In the example above, we only used a total of 2 accounts, one for debit and one for credit. But some transactions need more than 2 accounts in an entry. Such an entry is called a compound entry. For example, if we have a sale of 10,000, receive a partial payment of 7,000 in cash, and put the remaining 3,000 in accounts receivable, the compound entry looks like the following.
|Date||Account name and explanation||Debit||Credit|
（Sale of goods）
Whether a transaction is a simple entry or compound entry, the debit and credit sides must balance.
Posting from the Journal to Accounts
After entering transactions to the journal, we need to transfer each debit and credit amount of the entries in the journal to ledger accounts. This act is called posting. The collection of all the account ledgers is called the general ledger, and posting is done from the journal to the general ledger.
For example, here are the steps to post the previous compound entry.
- Post the date and debit amount of 7,000 in the cash account.
- Post the date and debit amount of 3,000 in the accounts receivable account.
- Post the date and credit amount of 10,000 in the sales account.