When a transaction is initially recorded in the journal and then subsequently posted to the general ledger, what is the primary purpose of this process?

• A. To record only cash transactions and ignore accruals
• B. To ensure that all financial transactions are systematically recorded and summarized for financial reporting
• C. To directly prepare the financial statements without any further steps
• D. To eliminate the need for adjusting entries at the end of the period

Answer: (B)

Verified step by step guidance

1. Understand the purpose of the journal: The journal is the initial book of entry where all financial transactions are recorded in chronological order. Each transaction is documented with details such as date, accounts affected, and amounts.
2. Recognize the role of the general ledger: After transactions are recorded in the journal, they are posted to the general ledger. The general ledger organizes transactions by account, providing a systematic summary of all financial activities.
3. Identify the primary purpose of this process: The process of recording transactions in the journal and posting them to the general ledger ensures that all financial transactions are systematically documented and summarized. This is essential for accurate financial reporting.
4. Clarify why cash transactions and accruals are both included: Financial accounting adheres to the accrual basis of accounting, which means both cash transactions and accruals are recorded to provide a complete picture of the company's financial position.
5. Explain why further steps are necessary: Posting transactions to the general ledger does not directly prepare financial statements or eliminate the need for adjusting entries. Adjusting entries are required to account for items like accrued expenses, prepaid expenses, and depreciation before preparing accurate financial statements.