- Now that we understand the journal entries,
the next step is that those journal entries
need to be posted to their related accounts.
T accounts are used to illustrate this process
with the letters A through G showing the cross-references
to the journal entries.
A balance is showed for the end of the period.
Turns out, where only one transaction is involved,
the amount of the transaction is also the account balance.
Let's take a detailed look at the cash T account.
What can we surmise just by looking at this account?
First, what do we know?
Well, for the cash account, it being an asset,
we know that debits mean increase
and credits mean decrease.
We can tell by looking at this account
that three transactions, transactions A, C, and G,
cause cash to increase.
And we know that three transactions,
transactions B, D, and F,
cause cash to decrease.
We also know that the ending balance
in the cash account is $7,900.
We could do a similar analysis for each account.
By knowing if the account is an asset,
a liability, or an equity account,
we know which side of the account reflects increases
and which side reflects decreases.
And we will also know which side will typically
carry the balance.
For assets and expenses,
those accounts typically have debit balances.
For liabilities, capital stock, and revenue accounts,
those accounts typically have credit balances.
Now, the effect of all these transactions
can be visualized using a spreadsheet format,
as seen here.
Note that the balances are exactly the same,
whether using a T account or using the spreadsheet.
If we were to take a moment
and add up all the account balances,
we would find that our asset accounts total $40,900.
Our liability accounts total $20,000,
and our owner's equity accounts total $20,900.
Good news!
The accounting equation, yep, still balances.
Now, after the account balances
have been determined, a trial balance is usually prepared.
A trial balance simply lists each account
with its debit or credit balance, as shown here.
Remember that an accountant named this report,
so its title pretty much describes what the report is.
A trial balance simply says let's do a trial
and see if things balance.
Let's see if our debits equal our credits.
By adding all the debit balances
and all the credit balances,
the accountant can see whether total debits
equal total credits.
Now, even if the trial balance
does show debits equaling credits,
there may be errors.
A transaction may have been omitted completely.
Or it may have been recorded incorrectly
or posted to the wrong account.
These types of errors will not be discovered
by preparing a trial balance,
that would require additional analysis.
But in this case,
total debits equal total credits.
Thus, the accounting equation?
Yep, it balances.