Accounting > General Ledger

The General Ledger


The general ledger is a collection of the firm's accounts. While the general journal is organized as a chronological record of transactions, the ledger is organized by account. In casual use the accounts of the general ledger often take the form of simple two-column T-accounts. In the formal records of the company they may contain a third or fourth column to display the account balance after each posting.

To illustrate the posting of transactions in the general ledger, consider the following transactions taken from the example on general journal entries:

Date

Account Names

     Debit

     Credit

9/1     

Cash

7500

 

 

     Capital

 

7500

 

9/8     

Bike parts

2500

 

 

     Accounts payable

 

2500

 

9/15     

Expenses

1000

 

 

     Cash

 

1000

 

9/17     

Cash

400

 

 

Accounts Receivable

700

 

 

     Revenue

 

1100

 

9/18     

Expenses

275

 

 

     Bike parts

 

275

 

9/25     

Cash

425

 

 

     Accounts receivable

 

425

 

9/28     

Accounts payable

500

 

 

     Cash

 

500

The above journal entries affect a total of seven different accounts and would be posted to the T-accounts of the general ledger as follows:

General Ledger

(T-Accounts)

Cash

Sep  

1

    7500

 

17

400

 

25

425

Sep  

15

    1000

 

28

500

Accounts Receivable

Sep  

17

    700

Sep  

25

    425

Bike Parts

Sep  

8

    2500

Sep  

18

    275

Accounts Payable

Sep  

28

    500

Sep  

8

    2500

Capital

  

 

    

Sep  

1

    7500

Revenue

  

 

    

Sep  

17

    1100

Expenses

Sep  

15

    1000

Sep  

18

    275

  

 

    

Note the direct mapping between the journal entries and the ledger postings. While this posting of journalized transactions in the general ledger at first may appear to be redundant since the transactions already are recorded in the general journal, the general ledger serves an important function: it allows one to view the activity and balance of each account at a glance. Because the posting to the ledger is simply a rearrangement of information requiring no additional decisions, it easily is performed by accounting software, either when the journal entry is made or as a batch process, for example, at the end of the day or week.

Finally, while such T-accounts are handy for informal use, in practice a three-column or four-column account may be used to show the running account balance, and in the case of a four column account, whether that balance is a net debit or credit. Additionally, reference numbers may be used so that each posting can be traced back to its original journal entry.

Accounting > General Ledger





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