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    Lesson 6 · Bookkeeping Foundations

    Journals, Ledgers, and the Trial Balance

    Bookkeeping has a flow: transactions go into a journal in date order, then get sorted into ledgers by account, and finally all the ledger balances come together in a trial balance to check that the books are in balance.

    Learn It

    There are three tools bookkeepers use to move a transaction from "something happened" to "the books are in balance."

    1

    The Journal

    The journal is where every transaction is first recorded, in the order it happens. Each entry shows the date, the accounts affected, and the debit and credit amounts. Think of it as the business's diary of money events.

    2

    The Ledger

    The ledger takes the journal entries and sorts them by account. Each account has its own page in the ledger showing every debit and credit to that account, and the running balance. The ledger answers: "How much is in Cash right now?"

    3

    The Trial Balance

    The trial balance lists every ledger account and its ending balance in one place. Debit balances go in the debit column; credit balances go in the credit column. If total debits equal total credits, the books are in balance.

    See It

    Let's follow four transactions through the full flow. We start in the journal, post to the Cash ledger, and build a trial balance.

    Step 1 — The Journal

    AccountDebitCredit
    Cash10,000—
    Owner's Capital—10,000
    Equipment2,000—
    Cash—2,000
    Cash1,500—
    Service Revenue—1,500
    Rent Expense500—
    Cash—500

    Step 2 — The Cash Ledger

    Now we pull every Cash entry into the Cash ledger and keep a running balance:

    DescriptionDebitCreditBalance
    Owner investment10,000—10,000
    Buy equipment—2,0008,000
    Service revenue1,500—9,500
    Pay rent—5009,000

    The ending Cash balance is $9,000 debit. We do the same for every other account.

    Step 3 — The Trial Balance

    Now we list every account's ending balance. Debit balances go left, credit balances go right:

    AccountDebitCredit
    Cash9,000—
    Equipment2,000—
    Owner's Capital—10,000
    Service Revenue—1,500
    Rent Expense500—
    Totals11,50011,500

    Total debits equal total credits at $11,500. The books are in balance. That does not mean every entry is correct — but it means debits and credits were posted equally, which is the first big check.

    Do It

    Now you do it. The journal entries are given. Calculate each account's ending balance and enter it in the trial balance. Check that your totals match.

    Do It — Post to the Ledger and Build a Trial Balance

    Below are four journal entries for a new business. Your job is to calculate each account's ending balance and enter it in the trial balance. Enter the amount as a plain number (for example, 9000). The side (debit or credit) is already filled in for you.

    The Journal

    AccountDebitCredit
    CashOwner invests $10,000 cash10,000—
    Owner's CapitalOwner invests $10,000 cash—10,000
    EquipmentBuy $2,000 equipment with cash2,000—
    CashBuy $2,000 equipment with cash—2,000
    CashReceive $1,500 cash for services1,500—
    Service RevenueReceive $1,500 cash for services—1,500
    Rent ExpensePay $500 cash for rent500—
    CashPay $500 cash for rent—500

    The Trial Balance — enter each account's ending balance:

    AccountDebitCredit
    Cash
    		—
    Equipment
    		—
    Owner's Capital—
    Service Revenue—
    Rent Expense
    		—
    Totals00

    Prove It

    Answer each question, then read the explanation. There's no score — this is just to help the ideas stick.

    Question 1

    What is the difference between a journal and a ledger?

    Question 2

    A trial balance lists every ledger account with its balance. What does it check?

    Question 3

    The Cash account has a debit of $800 and a credit of $300. What is the balance, and on which side?

    Key Takeaways

    • The journal records transactions in date order with debits and credits.
    • The ledger sorts journal entries by account and shows a running balance for each.
    • A ledger account's balance equals its total debits minus its total credits (or vice versa).
    • The trial balance lists every account's ending balance to check that total debits equal total credits.
    • If the trial balance does not balance, an error was made somewhere in posting.