Lesson 4 In The Basic Accounting Series:
A general accounting ledger is a collection of your chart of accounts. It is where all of your general journal entries or financial transactions end up for the accounting period.
While spreadsheets can be used, most all accounting these days is done on with software, which makes it easier for the bookkeeper. Accounting software such as Quickbooks, Xero, Freshbooks, Wave and others do the posting to the general ledger accounts in the background for efficiency and accuracy. Financial statements such as the balance sheet and the income statement are both created from the general ledger. The account balances from the general ledger are also summed up to create a trial balance.
For example, say you record a check that you wrote to pay your rent in your accounting software.
In the background, your accounting software will automatically debit your rent expense account and credit your cash account…posting them to your accounting ledger.
However, it is important as small business owners or even someone just studying accounting to know how and why the accounting software did what it did and to fully understand the accounting system.
So I am going to give you a brief overview of how to post accounting journal entries to your general ledger.
First of all, if you haven’t read it, please read this page on accounting journal entries. It will tell you how to decide if an account should be debited or credited.
I am going to use those accounting journal entry examples to show you how to post them to an accounting ledger. So you might want to print that page out first and then come back to this page…or I have the above link to the accounting journal entries opening in another window if you just want to have both pages up at once.
Posting To An Accounting Ledger:
As you can see, Jane and Bob have recorded their business transactions for the first month of business. Now it is time to take those accounting journal entries and transfer the debits and credits from the journal entries to the appropriate accounts in the general accounting journal.
This is called posting.
Here is an example of posting some of Jane and Bob’s journal entries that involved cash to the Cash account in their accounting ledger. It is always helpful to keep the accounting equation in mind when posting debit amounts and credit amounts. This is also known as the double-entry bookkeeping method.
|March-1||Balance forward from Feb-28||0|
The title contains the name of the account and its reference number from your chart of accounts.
- The first column is the date. Fill in the date of the transaction.
- The second column is the item. (It is not necessary to write out a description unless you just want to.)
- The third and fourth column is the debit and credit columns. Debit entries are entered on the left side or debit side, while credit entries are entered on the right side or credit side.
- The fifth column is the balance column. Some keep a running total, but most draw a line underneath the entries, net all the entries together, and put the balance on the correct side (See explanation at the bottom of this page) of the account.
Summary of the example above:
- The first line is the balance carries forward from the month before.
- The second line is Jane and Bob’s contribution of $15,000 on March 1st to capitalize their business. (Increased cash – debit)
- On the 5th, Jane wrote a check for $1700 for the lease on their store.(Decreased cash – credit)
- On the 15th, they had cash sales of $1200. (Increased cash – debit)
- On the 28th, Bob paid $1800 to their suppliers for material purchases made earlier in the month on credit. (Decreased cash – credit)
- On the 30th, they received $500 from their credit customers (Increased cash – debit)
I just used this as an example. In real life, you would take each line from the accounting journal entries and transfer the amounts to the corresponding Ledger accounts.
*Notice where I put the balance. It is in the debit column. Each type of account will have a normal balance in either the debit or credit column depending on the category of the account:
- Asset accounts like cash accounts receivable, land, and equipment have a debit balance.
- Liability accounts have a credit balance.
- Owner’s Equity has a credit balance.
- Incomes have a credit balance.
- Expenses, such as utilities and fees, have a debit balance.