Posting Accounting Definition – Rules and Example

Definition of Posting Accounting

Posting accounting definition refers to the concept of posting in accounting. It explains the transfer of amount from journal to ledger or balance of various accounts to the general ledger to make it simple to understand. 

The activity of posting accounting definition is exercised on regular basis like monthly, half-yearly, quarterly or yearly depending upon the volume of transactions and size of the entity. Few large organisations post monthly closing balance by making sub-ledger for an accounting period while smaller ones may directly transfer the balance to the general ledger due to the low volume of entries.

For example, Organisations with several branches that maintain separate accounts or a parent company maintaining accounts of its associate or subsidiary company.

Posting accounting definition involves manpower work, therefore, counted as a manual process.  The consolidation of accounts may also be required in case of posting. However, with growing technology, explaining what is meant by posting accounting definition , is a traditional process and is hardly noticed and eliminated due to the availability of automated machines or software.

Introduction for posting accounting definition

Accounting 

Starting from the basics, Accounting refers to the procedure of recording the financial transactions related to the business. It includes summarizing, analysing, interpreting and communicating the results to regulators, agencies, stakeholders and tax collection entities. The financial statements represent a summary of business operations, cash flows and financial position over an accounting period. 

Accounting cycle

The accounting cycle is a seven-step process followed for the completion of the accountancy task usually by double-entry bookkeeping method. 

Journal 

A journal forms the basic step that records all financial transactions required for future reconciling and transfer of information to other official records like a general ledger(posting accounting definition). It consists of the date, the name of accounts affected LF note (that tells the page number of the ledger), debit and credit amounts.

Ledger 

A general ledger explains the further step of accounting commonly called posting accounting definition. It refers to keeping records or hold information of individual accounts operations separately that are mentioned in the journal. 

At last, their balances are validated by a trial balance. The data is segregated on basis of type, into accounts for liabilities, assets, revenue, expenses and owner’s equity. The format has two sides namely debit and credit with the date of transaction, account by which it is debited or credit, the JF note and respective amounts.

Types of accounts 

To explain what is meant by posting accounting definition, one has to identify what is the nature or type of account to see which rule applies and for further analysis. As a result, there are three accounts:

• Personal
• Real
• Nominal 

Personal account

They are the accounts of firms, other associations and persons with which the company has its dealings. The rule here is general debit the receiver and credit the giver. This explains that the person who receives something debits while the person who gives something credits.

Real account

This type holds the category for lifeless things or relating to assets/ properties like machinery, land etc. The rule applied is to debit what comes in and credit what goes out. Further elaborated states that credit the things that go out while debit the ones that come to the company.

Nominal account

Also termed as fictitious account relates to accounts of expenses, income and profit or losses. Many types of transactions relating to expenses( wages, salary, rent etc), discount, income and commission are carried in a business. Therefore, the rule becomes debit all expenses and losses while credit all incomes and gains.

Rules for posting

• According to the accounting standards, companies follow a dual or double-entry system. Therefore, the entry records in both accounts while posting accounting definition in a ledger. For example, if a person purchases on a credit basis, then the transaction is posted in the creditor’s account and purchase account.
• The balances of nominal accounts transfer directly to the profit and loss account.
• To discuss the process of posting follows a chronological manner in the ledger that means date wise.
• The three golden rules of accounting must be kept in mind i.e liabilities are credited while assets need to be debited.
• The amounts records on the respective sides or columns of format like accounts in particulars, the debit amount on the debit side while credited balance on the credit side. 

Importance of Posting Accounting Definition

Ensures Smooth Functioning of Business

Posting balances are exercised to track the records and can be easily called for. They support cross-verification and ensures arithmetical accuracy which can be rechecked. Therefore, it helps in detecting mistakes of the accounting that enables smooth running of a business.

Balance can be verified easily

Posting accounting definition enables the company to know the balance of each account on a particular date. Also, this creates a crystal understanding of account balances and lessens the efforts made in finding from the individual ledger accounts.

Easily analysed 

Since the balance of ledger accounts edits easily while recording various entries, so if a certain account has the same balance for a continuous period of time then, the accountant can analyse and clear the balance or he may record it as bad debts.

As a result, posting accounting definition gives a clear picture of the progress or downfall in the specific ledger and decisions can be made respectively.

Updated records

Postin accounting definition gives an updated status of all the ledger balances. Moreover, it aids in tracking the balances on the records of how it has changed over some time. 

Discuss the Process of Posting

Noting the monetary transactions and passing journal entries are the first two steps of accountancy. Ledger (or posting accounting definition) generally means posting into a separate account that form the next step of the cycle. 

However, there are five steps of posting accounting definition from journal to ledger that includes typing account name and number, mentioning details of journal entry( JF note), entering the amount of credit and debit, summarizing both sides of debit and credit and at last correcting the errors which are as follows:

Enter account name and number

Firstly, The profit and loss account statement includes the cost of goods sold, sales, depreciation expense, marketing and advertising expenses, taxes and interest. Whereas the balance sheet counts account receivable, bonds payable, retained earnings, cash, accounts payable, accumulated depreciation, and common stock. Therefore, it becomes necessary for the accountant to segregate the account category.

Post the entry details

To explain what is meant by posting accounting definition, the second step involves the input of description, reference number of each journal entry and date for each account during an accounting period. For example, J2 explains that the journal is from page 2. 

Enter the credit and debit

The next step for posting accounting definition process is the recording of credit and debit amounts. Therefore, the amounts must be of dual aspect. The debit amount increases the asset accounts of the balance sheet like inventory, cash, etc, and increase expense accounts like salary, marketing, etc while it goes vice-versa with liability accounts.

The credit amount increases the liability accounts of the balance sheet like shareholders equity, sales account etc whereas the situation is vice-versa for asset accounts.

Find running balance

The next step includes calculating the overall figures of both sides ( debit and credit) for each ledger account.

For example, if the purchase account has debit entries of $10000, $5000 and $3000 while credit entires as $1000 and $2000 then the sum will be $18000 and $3000 respectively. As a result, the final balance will be debit minus credit on the last date i.e $15000.

Correcting errors

Lastly, for posting accounting definition it is to check the mathematical accuracy and errors in data transfer. In today’s scenario, accounting software might reduce mistakes through automation but posting of correct numbers must be verified to prevent transmission of those figures to the financial statements. 

Example of Posting in Accounting 

The following example of posting in accounting depicts how journal entries can be posted to the general ledger. As the company make transactions, they must post to the general ledger to keep the records accurate. 

Also, At the end of the accounting period, the transfer of journal entries takes place to the ledger. Therefore, here is an example of posting in accounting that can give a better understanding of the concept:

Since the volume of transactions is small, there is a general ledger (or posting accounting definition) for all the journal entries that may have transacted over some time. However, if an accountant or bookkeeper make sub-ledgers or T accounts for all.

 In that case, a deposit account, rent account and inventory account will be made with Rs. 7000 debit balance, Rs. 2000 as credit balance and Rs. 2500 as credit balance respectively. Therefore, the total calculates by deduction of credit balance from debit, providing the figures for further analysis or financial statements.

Conclusion 

Therefore, the posting accounting definition explains the recording of the double-entry transaction that first considers in the form of a journal entry and then posted again in respective ledger accounts or sub-ledgers.

Also, Ledger posting segregates the nature of accounts and their balances which helps in making the financial statements i.e trial balance, profit and loss account and balance sheet.