General ledger
Encyclopedia
The main accounting record of a business which uses double-entry bookkeeping. It will usually include accounts for such items as current assets, fixed assets, liabilities, revenue and expense items, gains and losses. Each General Ledger is divided into debits and credits sections. The left hand side lists debit transactions and the right hand side lists credit transactions. This gives a 'T' shape to each individual general ledger account.
A "T" account showing debits on the left and credits on the right.
The general ledger is a collection of the group of accounts that supports the value items shown in the major financial statements. It is built up by posting transactions recorded in the sales daybook, purchases daybook, cash book and general journal
s daybook. The general ledger can be supported by one or more subsidiary ledgers
that provide details for accounts in the general ledger. For instance, an accounts receivable
subsidiary ledger would contain a separate account for each credit customer, tracking that customer's balance separately. This subsidiary ledger would then be totalled and compared with its controlling account
(in this case, Accounts Receivable) to ensure accuracy as part of the process of preparing a trial balance
.
There are five(seven) basic categories in which all accounts are grouped:
The balance sheet
and the income statement
are both derived from the general ledger. Each account in the general ledger consists of one or more pages. The general ledger is where posting to the accounts occurs. Posting is the process of recording amounts as credits, (right side), and amounts as debits, (left side), in the pages of the general ledger. Additional columns to the right hold a running activity total (similar to a checkbook).
The listing of the account names is called the chart of accounts
. The extraction of account balances is called a trial balance
. The purpose of the trial balance is, at a preliminary stage of the financial statement
preparation process, to ensure the equality of the total debits and credits
.
The general ledger should include the date, description and balance or total amount for each account. It is usually divided into at least seven main categories. These categories generally include assets, liabilities, owner's equity, revenue, expenses, gains and losses. The main categories of the general ledger may be further subdivided into subledger
s to include additional details of such accounts as cash, accounts receivable, accounts payable, etc.
Because each bookkeeping entry debits one account and credits another account in an equal amount, the double-entry bookkeeping system helps ensure that the general ledger is always in balance, thus maintaining the accounting equation
:
The accounting equation is the mathematical structure of the balance sheet
. Although a general ledger appears to be fairly simple, in large or complex organizations or organizations with various subsidiaries, the general ledger can grow to be quite large and take several hours or days to audit or balance.
A "T" account showing debits on the left and credits on the right.
| Debits | Credits |
|---|---|
The general ledger is a collection of the group of accounts that supports the value items shown in the major financial statements. It is built up by posting transactions recorded in the sales daybook, purchases daybook, cash book and general journal
General journal
The general journal is where double entry bookkeeping entries are recorded by debiting one or more accounts and crediting another one or more accounts with the same total amount...
s daybook. The general ledger can be supported by one or more subsidiary ledgers
Subledger
The subledger, or subsidiary ledger, is a subset of the general ledger used in accounting. The subledger shows detail for part of the accounting records such as property and equipment, prepaid expenses, etc. The detail would include such items as date the item was purchased or expense incurred, a...
that provide details for accounts in the general ledger. For instance, an accounts receivable
Accounts receivable
Accounts receivable also known as Debtors, is money owed to a business by its clients and shown on its Balance Sheet as an asset...
subsidiary ledger would contain a separate account for each credit customer, tracking that customer's balance separately. This subsidiary ledger would then be totalled and compared with its controlling account
Controlling account
In accounting, the controlling account is an account in the general ledger for which a corresponding subsidiary ledger has been created. The subsidiary ledger allows for tracking transactions within the controlling account in more detail...
(in this case, Accounts Receivable) to ensure accuracy as part of the process of preparing a trial balance
Trial balance
A trial balance is a list of all the nominal ledger accounts contained in the ledger of a business. This list will contain the name of the nominal ledger account and the value of that nominal ledger account. The value of the nominal ledger will hold either a debit balance value or a credit value...
.
There are five(seven) basic categories in which all accounts are grouped:
- Assets
- LiabilityLiability (financial accounting)In financial accounting, a liability is defined as an obligation of an entity arising from past transactions or events, the settlement of which may result in the transfer or use of assets, provision of services or other yielding of economic benefits in the future.A liability is defined by the...
- Owner's equity
- RevenueRevenueIn business, revenue is income that a company receives from its normal business activities, usually from the sale of goods and services to customers. In many countries, such as the United Kingdom, revenue is referred to as turnover....
- ExpenseExpenseIn common usage, an expense or expenditure is an outflow of money to another person or group to pay for an item or service, or for a category of costs. For a tenant, rent is an expense. For students or parents, tuition is an expense. Buying food, clothing, furniture or an automobile is often...
- (GainsGain (finance)In finance, gain is a profit or an increase in value of an investment such as a stock or bond. Gain is calculated by fair market value or the proceeds from the sale of the investment minus the sum of the purchase price and all costs associated with it...
) - (LossLossLoss may refer to:*A negative difference between retail price and cost of production**Loss leader a deliberate commercial loss made in the expectation of recouping it by profitable sales of other lines...
)
The balance sheet
Balance sheet
In financial accounting, a balance sheet or statement of financial position is a summary of the financial balances of a sole proprietorship, a business partnership or a company. Assets, liabilities and ownership equity are listed as of a specific date, such as the end of its financial year. A...
and the income statement
Income statement
Income statement is a company's financial statement that indicates how the revenue Income statement (also referred to as profit and loss statement (P&L), statement of financial performance, earnings statement, operating statement or statement of operations) is a company's financial statement that...
are both derived from the general ledger. Each account in the general ledger consists of one or more pages. The general ledger is where posting to the accounts occurs. Posting is the process of recording amounts as credits, (right side), and amounts as debits, (left side), in the pages of the general ledger. Additional columns to the right hold a running activity total (similar to a checkbook).
The listing of the account names is called the chart of accounts
Chart of accounts
__FORCETOC__A chart of accounts is a created list of the accounts used by a business entity to define each class of items for which money or the equivalent is spent or received...
. The extraction of account balances is called a trial balance
Trial balance
A trial balance is a list of all the nominal ledger accounts contained in the ledger of a business. This list will contain the name of the nominal ledger account and the value of that nominal ledger account. The value of the nominal ledger will hold either a debit balance value or a credit value...
. The purpose of the trial balance is, at a preliminary stage of the financial statement
Financial statement
A financial statement is a formal record of the financial activities of a business, person, or other entity. In British English—including United Kingdom company law—a financial statement is often referred to as an account, although the term financial statement is also used, particularly by...
preparation process, to ensure the equality of the total debits and credits
Debits and credits
Debit and credit are the two aspects of every financial transaction. Their use and implication is the fundamental concept in the double-entry bookkeeping system, in which every debit transaction must have a corresponding credit transaction and vice versa.Debits and credits are a system of notation...
.
The general ledger should include the date, description and balance or total amount for each account. It is usually divided into at least seven main categories. These categories generally include assets, liabilities, owner's equity, revenue, expenses, gains and losses. The main categories of the general ledger may be further subdivided into subledger
Subledger
The subledger, or subsidiary ledger, is a subset of the general ledger used in accounting. The subledger shows detail for part of the accounting records such as property and equipment, prepaid expenses, etc. The detail would include such items as date the item was purchased or expense incurred, a...
s to include additional details of such accounts as cash, accounts receivable, accounts payable, etc.
Because each bookkeeping entry debits one account and credits another account in an equal amount, the double-entry bookkeeping system helps ensure that the general ledger is always in balance, thus maintaining the accounting equation
Accounting equation
The basic accounting equation' is the foundation for the double-entry bookkeeping system. For each transaction, the total debits equal the total credits.In a corporation, capital represents the stockholders' equity.-In practice:...
:
The accounting equation is the mathematical structure of the balance sheet
Balance sheet
In financial accounting, a balance sheet or statement of financial position is a summary of the financial balances of a sole proprietorship, a business partnership or a company. Assets, liabilities and ownership equity are listed as of a specific date, such as the end of its financial year. A...
. Although a general ledger appears to be fairly simple, in large or complex organizations or organizations with various subsidiaries, the general ledger can grow to be quite large and take several hours or days to audit or balance.