How do transactions flow from journals to ledgers to a trial balance?
Record transactions in the general journal and post them to ledger accounts.
Follow the recording cycle from source documents to journals, ledger posting and a balanced trial balance using double-entry.
Reviewed by: AI editorial process; not yet individually human-reviewed
Have a quick question? Jump to the Q&A page
What this dot point is asking
The recording process follows an orderly cycle so that information is captured once, accurately, and can be traced from start to finish. The steps are: source document, journal entry, ledger posting, and trial balance.
Source documents
Every entry should be supported by a source document, such as an invoice, receipt, cheque butt or bank statement. Source documents provide the evidence (objectivity) for the amounts recorded and the date the transaction occurred.
The general journal
The journal is the book of original entry. Each entry lists the date, the account(s) debited, the account(s) credited (indented), the dollar amounts in debit and credit columns, and a short narration explaining the transaction. The debit is always written first.
The ledger
The ledger is the collection of all individual accounts (Cash, Debtors, Sales, Wages and so on). Posting means transferring the debit and credit amounts from the journal into the matching ledger accounts. Each ledger account accumulates all the increases and decreases for that item, and its balance is the net figure.
Two common ledger formats are used:
- T-format: a two-sided account with debits on the left and credits on the right.
- Running balance format: columns for debit, credit and a running balance after each entry (the format used by most accounting software).
The trial balance
After posting, the balance of every ledger account is listed in a trial balance, with debit balances in one column and credit balances in the other. If the double-entry has been done correctly, the two columns are equal. A balanced trial balance confirms the arithmetic, but it does not prove there are no errors (for example, an entry posted to the wrong account of the same type will still balance).
Worked example
Why this matters
Accurate journals and ledgers are the source of the financial statements. Errors made here flow straight through to the reports, so neat, well-narrated entries and a balanced trial balance are essential before any statements are prepared.