A ledger, or general ledger, or general journal or just GL covers all the financial information about your company. The data on a ledger helps you guide your income and see quickly how much money you have.
A general ledger lays the groundwork for your online bookkeeping and accounting service — it gives them the essentials for making your business financial documents: the income statement, the balance sheet and the cash-flow statement. It also keeps all your journal entries (financial transactions) in one place. Besides this, a GL makes it easier to file in taxes -— for example, if you pay government contributions to your employees, you can check out how much you have paid them in a particular financial year to count the tax to pay on it.
Types of general ledger accounts and the chart of accounts
The general ledger is divided into general ledger accounts or sub-ledgers -— which record transactions as they happen while your company earns and spends. Sub-ledgers cover:
- Assets — cash, accounts receivable, land, etc.
- Liabilities — loans and bonds payable, etc.
- Stockholders’ equity — common stock, retained earnings, etc.
- Operating revenues — money from sales and services fees, etc.
- Operating expenses — spendings on salaries, rent or depreciation costs, etc.
- Non-operating revenues and gains — income from investments, etc.
- Non-operating expenses and losses — expenses on interest, etc.
These parts of the classification then go to the corresponding financial statements:
- Assets, liabilities and stockholders’ equity go to the balance sheet.
- Operating and non-operating revenues and expenses are for the income statement.
This list of sub-ledgers is not exhaustive or binding, it is usually made up to fit the needs and specifics of a particular company. And this specific set of sub-ledgers of a company is known as the chart of accounts.
How it works: ledger, journal and posting
Figures on a ledger are used to make your company’s financial statements. But let’s have a look at what happens with a transaction right after it is made and how it actually reaches the ledger.
For example, on April 17, 2019, Jackson & Jackson sells goods to its customers for £15,000 in cash. Let’s break it down into steps.
- Your bookkeeper puts it into the journal entry — in the form of debits and credits.
|Date||Account title and explanation||Debit||Credit|
|2019 April 17||Cash||£15,000|
2. Then the figures go to the general ledger. This process is called posting. On the LG, also known as T-accounts, the sum moves to the corresponding sub-ledgers. Like this:
Sometimes, special codes are attached to each type of transaction — to make your ledger more organised and the search for particular sub-ledgers easier.
Online bookkeeper moves the figures automatically from the journal entry to the ledger — distributing the data to the corresponding groups.
3. The next step is to use these figures to make the financial statements of the company.
A trial balance is a worksheet, aimed at checking whether the figures your bookkeeper has been gathering in the ledger are correct. It is divided into two columns, one for debits and one for the credits and they must equal. A trial balance is not considered to be a separate financial report.
A double-entry accounting and bookkeeping system is what your bookkeeper uses when filling in the ledger and making a trial balance. In simple words, it means recording each transaction twice — once when the money leaves the count (a credit) and then again as the money enters the account (a debit) and then ensuring they equal.
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