In this lesson, we're going to learn how to post journal entries and create a trial balance. I'm going to show you a foolproof way to do this that will save you hours of frustration that you're likely to experience if you're using T accounts or any sort of direct method. Let's get started. In the last lesson, I discussed how you analyze transactions and prepare journal entries. This lesson is the second stage of our journey. And in this lesson, we will carry on with our mini case to post the journal entries to create a general ledger and a trial balance.

In our next and final lesson, I'm going to show you how to prepare financial statements to bring you up to speed quickly, simple side and incorporate a company on May 1. Now a month and a half later. He needs financial statements for his first month of operations. Oh by the way, company sales Eric conditioners. These were the transactions we analyzed in our last lesson. Pause the video and review the listing if you missed that lesson.

From this point on, I'm going to switch over to Excel to show you how to post these transactions. So here we are in Microsoft Excel. Now pay close attention to how I create what is called the working trial balance. In a working trial balance, I will list my chart of accounts down the left hand side of the screen. And across the top, I'm going to list my journal entries which I've numbered from one to 11 to correspond to the transactions that are listed above. You will commonly hear lecturers talk about debits on the left hand credits on the right.

I don't teach accounting this way, because in my mind, I've seen too many students mix up their lesson their rights. I've also observed that for all of Microsoft Excel is incorrect incredible power. It too cannot distinguish left from right So in my world, debits are positive numbers and credits are negative numbers, you'll see the power of this mentality quickly, but this is what it looks like. Typically, I don't put the negative numbers in red, but I do that for emphasis in this presentation. Notice that the sum total is zero. In other words, my debits equal my credits.

I can't tell you how many thousands of times I've had students give me something that doesn't balance. So let's go back and work through our example with Simple Simon. Our first step was to put the accounts that we need in column A, I got these accounts from our discussion in our last lesson. These are all the accounts we used in preparing our journal entries. You can also just add the accounts as you go along by inserting new rows. I've color coded the accounts to help you recognize the different types of accounts, assets, liabilities, hackers, And then your revenue and expense accounts, which I'd like you to think of as a component or breakdown of equity.

And I say this only because it's a conceptually superior way to think of your income accounts. Secondly, notice that in row 35, I've inserted a total, which is just a sum of all the cells where we will input our debits and credits. Any idea as to what you would expect in this total cell? Yes, that's right. This total cells should always sum to zero. We'll copy this formula across all the columns.

Next, we're going to set up another total income Oh, and that adds across the table. Again, Copy this formula down to all the rows. And now we're ready to start posting our journal entries. And this will go pretty quickly. Our first journal entry recorded the contribution of capital to the company by Simple Simon for $5,000 debit cash with a positive number and cell B 16. Credit capital stock with a negative $5,000 in cell B 26. Lo and behold, your total in row 35 zeroes out, which means that we have an equal number of debits as we do credits.

You might think this seems pretty basic when you're looking at a journal entry with just one debit and one credit, but it can get more complex as you learn more about accounting. Let's move on to the next entry. In our second journal entry, we post the debits has positive amounts to the accounts identified in our journal entry. Whether you call the hazard account a vehicle account or capital asset, it really doesn't matter. The credit to the cash and to the long term debt are shown as negative numbers. Once again, we know we've got to write because the column totals to zero our third transaction resulted in No journal entry, so there is nothing to record.

Our fourth entry, increase the cash balance, so a positive $3,000 and sell a 16 and increase the liability. So a negative $3,000 in cell E 23. I have nothing against deposits or unearned revenue. It's just a way for me to say to excel, hey, this is a credit number, or you start to get the idea now our fifth item was just a purchase order to a supplier and we determined that no journal entry was necessary. But then we received the purchase inventory, we put a positive number in inventory account to debit it, and we put a negative amount in the liability account to credit accounts payable. Our seventh journal entry was a big one to record the sale of the air conditioning unit.

You could post these as three separate two long journal entries, or combine them into one big journal entry. Notice that I've taken the two $3,000 credit To sales and added them together and posted it as one $6,000 credit amount. In simple math, you can do this and accounting uses a lot of simple math like this. So shortcuts can be taken or a transaction records the dividends, some accountants will record the debit directly against the retained earnings account, as this is the account that dividends get paid from. This is fine to do. However, when you prepare your statement of changes in equity, you'll separately need to break out dividends.

So that's why I prefer to have a separate general ledger account to track dividends paid. The dividend account can be thought of as a contra account to the retained earnings for balance sheet presentation. Do you remember what a contra account is? Yeah, it'd be something that gets presented together on a net basis. The ninth entry was to record our credit card changes incurred during the month, but unpaid at month end are 10 Entry picks up on the accrued liability for services supplied to the company during May, but for which the invoice had yet to be received by May 31. A credit to accrued liabilities and a debit to operating expenses.

Our last listed transaction was to allow for the possibility of bad debts. We debit bad debt expense for $500. I know you might be struggling with putting a positive number in an expense, but you've got to shut off that part of your brain that is associating positive numbers with positive income. It's positive only in the sense that it simply means this number is a debit. The credit goes to the allowance for doubtful accounts, which is a contra account against accounts receivable. And for those of you who saw the previous lesson, there are two additional entries that we had to prepare to close the books.

The first was the depreciation entry. The positive debit amount goes to depreciation expense and the negative credit goes to accumulated depreciation, which is a contra account against capital assets. And finally, the accrued interest expense was recorded by debiting interest expense and crediting her accrued liabilities. So this is the exciting part, you've got all these entries posted. When you use this sort of an approach with positive debits and negative credits, it's easy to see if something was missed. our bottom line totals are all zeros, which means that we posted as many debits as we posted credits.

That's a pretty good start. And believe me, I've seen even fourth year students and professional candidates who still struggle with this part. We can also look at the vertical total column. This is your trial bounce. a sanity check is to look at each row and make sure that each number makes sense. For instance, cash of $3,500 does this agree to the bank statement sales of 6000 Does that make sense?

Sure it does. We only have one contract which we completed during the month. for that amount. We haven't collected all that cash. And some of that amount is doubtful. However, the gross amount of the sales makes sense based on what we know about the business.

Well, I call this spreadsheet on working trial balance. Believe it or not, you in essence, have just created a crude general ledger, you can scan across each of the rows and see the transactions that increased or decreased every account. This schedule has tremendous informational value. So just don't walk away thinking that these are a bunch of numbers and formulas. The Home Depot statements I showed you in the first lesson, we're mechanically prepared using exactly what you see on the screen in front of you, except that instead of 13 journal entries, imagine hundreds of millions of columns to the right and probably hundreds of thousands of rows. To the left, but at the end of the day is the same methodology.

So what do we just learn? Well, in this lesson, I discussed how you post journal entries to create a trial balance. I told you to associate debits as positive numbers in Excel, and credits has negative numbers. It's not because I like debits more than I like credits. I've done this because Excel is not very good at figuring out it's left from its right. I've also showed you how to prepare a working trial balance.

For some of my small nonprofit organizations. I still use a simple format like this to prepare financial statements. I swear to you if you try to shortcut the process by skipping this step like they do in so many introductory intermediate and advanced textbooks, you're asking for trouble. Mark my words and heed my advice do not skip this step of processing transactions using a working trial balance. And finally, the use of the spreadsheet set up with total holes at the bottom that work out to zero and balances on the right that equal out to what the account balance should probably be provide you with built in integrity checks. Here's the same spreadsheet with only one change.

In this case, I posted all the same entries. However I just put the debits and credits in has positive numbers for each of the accounts. So what's wrong with this? Well, let me tell you. First by just looking at this, I can't tell whether my debits and credits bounce. Secondly, I'm going to need to know which accounts are normally debits and which are normally credits in order to proceed to the next step.

Sometimes odd things happen, such as a negative equity balance, which as you know, is a debit. And you're just going to confuse yourself if you don't have a way for distinguishing those debits from credits. Thirdly, to get my totals in column all the work, I need to manually go back and add in Subtract the different balances based on whether they're debits or credits. So as your head starting to hurt yet, mine certainly is. Hopefully you get my point. That's all for this lesson, but be sure to look at other lessons to help you develop your bookkeeping skills for others.