How a General Ledger Works With Double-Entry Accounting Along With Examples

Your accountant (or you as a business owner) will need to rely on the general ledger to file taxes. Since all expenses and revenue are in a single place and all transactional data is detailed in the sub-ledger, you can cut your filing time in half. We have also provided the two accounts’ ledgers in which the journal entry will be posted.

A small business will maintain all its accounting records using a single general ledger supported by the books of prime entry such as day-books and journals together with accounting source documents. how to calculate direct labor cost The ledger contains accounts for all items listed in the accounting equation, i.e. assets, liabilities and equity. Of course equity includes capital, revenue, expenses, gains, losses, drawings, and retained earnings, so the ledger must at least include GL account codes for each of these groups.

1. Accounting ledgers can be displayed in many different ways, but the concept is still the same.
2. This information is used to prepare financial reports, monitor finances, track cash flow, and prevent accounting errors or fraud.
3. Chartered accountant Michael Brown is the founder and CEO of Double Entry Bookkeeping.
4. If you’re ever audited, you won’t have to dig through paper files to get organized.
5. If these are not equal, then the accountant will check for errors in the journals and accounts.
6. For any details on the transaction, confusion or rectification, accountants refer to these two books of accounts.

What does a general ledger include?

As a result, you do not record details of each sales transaction undertaken with your customers in the accounts receivable control account. But, you can refer to the related subsidiary account if you need to check any detail regarding the sales made to a specific customer. As a result, such a record helps you in tracking various transactions related to specific account heads, and it also helps speed up the process of preparing books of accounts. Accounting ledgers are an essential part of a small business’ bookkeeping practices. As a small business owner, you need to be aware of all the transactions your business has completed in an accounting period.

Step #2: Post journal entries

And to ensure that your financial reports are correct, you can even use an adjusted trial balance to see all your financial transactions in one place. After the ledger entries, the balances of all the ledger accounts are taken to the trial balance sheet. A trial balance is a worksheet with the column of debit and credit corresponding to the rules of double-entry bookkeeping or dual aspect of accounting. As your company grows, you can use the GL to track where your money is going and where it is coming from, using this data to make future business decisions. Adjusting entries are prepared at the end of an accounting period to consider income or expenses that have not yet been recorded in the general ledger. As a result, these entries can be for accrued expenses, accrued revenues, prepaid expenses, deferred revenues, and depreciation.

GL Month End Closing

With the help of this single-view-pane of all transactions, you can detect potential fraud quickly and take action immediately. Typically, all transactions are initially recorded in the general journal, and then all the related accounts are transferred to the general ledger. Separating these accounts from the main ledger removes a large amount of detail and allows different staff to work on different aspects of the accounting records.

Adapt the ledger to suit your working style, while keeping it up-to-date and accurate. Double-check record accuracy routinely to prevent accounting errors so you can use the information within to more-precisely track your company’s growth. Capture important insights on the overall financial health of your company with this dynamic general ledger template with budget-comparison capabilities. This template includes a year-to-date (YTD) budget summary sheet for recording the budgeted and actual amounts of transactions.

The general ledger follows the “T format,” sometimes referred to as “T-accounts,” with the left side depicting debit and right side credit. Double Entry Bookkeeping is here to provide you with free online information to help you learn and understand bookkeeping and introductory accounting. As the business grows and the number of accounting staff increases it is impractical to have only one ledger.

Income statement accounts, like operating and non-operating income, and expenses start afresh with every accounting period. So, at the beginning of the accounting period, these accounts must have a NIL balance. Unlike journal where transactions are recorded in chronological order as they occur, you record transactions in the ledger by classifying them under various account heads to which they relate.

Once your GL has been created, diligently fill in the spaces, documenting all financial transactions that take place. This is the place where you consolidate all cash inflow and outflow, purchases, sales information, and other journal entries. Options to include on your GL chart of accounts are assets, liabilities, revenues, equities, and expenses, along with other income and expenses, if relevant. The credit sales figure of $200,000 would go into the accounts receivable control account. Whereas, the sales details of various debtors like Jack & Co., Mayers, and John can be found in the related subsidiary ledger.