The third step in the accounting cycle is posting transactions from the journal to the ledger.
This is the process of transferring data from the journal to the ledger, which in beginning accounting is often illustrated with a T account.
Recall that debits are always on the left and credits are always on the right.
The process of posting is fairly straight forward, in fact, I would suggest that you don't overthink the process.
It starts with identifying the debit account and the amount from the journal.
Then find that account in the ledger.
Record the amount as a debit or on the left side of the account.
Then do the same thing for the credit account.
Identify the credit account and amount
Find that account in the ledger.
Record the amount as a credit or on the right side of the account.
Let's look at this example.
We have a journal entry where we've debited accounts receivable for $2000 and credited its service revenue for $2000. The date is January 5.
In the ledger, will need to find the accounts receivable account and the service revenue account.
Then identify the debit account, which is accounts receivable.
The amount of the debit is $2000.
So we now will record $2000 to the debit side of the accounts receivable account.
Now let's post the credit.
Identify the credit account, which in this case is service revenue.
The amount of the credit is $2000.
So in the ledger for service revenue we will record or post $2000 to the credit side.
So now you can see that the amounts from the journals have been posted in the ledger.
The importance of this step is to make sure that all similar transactions are recorded in the same place. If you were an accountant for this company and you wanted to know how much service revenue your company had for a month, without this step, you would have to go through every single journal entry in the general journal looking for those that affected revenue. That would be quite time consuming, even for the smallest of businesses.
Finally, let me add that these first three steps to the accounting cycle are repeated over and over again during the month. The remainder of the accounting cycle all happens at the end of month.