DOWNLOAD PDF GENERAL JOURNAL AND LEDGER

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1 Chapter 1 : The General Journal and Ledger The general journal is a place to first record an entry before it gets posted to the appropriate accounts. Related Questions What is the difference between entries in a general journal versus a general ledger? How to Prepare Journal Entries for Accounting by Kirk Thomason - Updated September 26, The general ledger is the primary accounting tool companies use to record business transactions. Journal entries represent business activities; accountants must record entries to enter the financial information into the general ledger. Recording journal entries is the first step in the accounting cycle. Each month, accountants record transactions through a series of journal entries. The trial balance includes all general ledger account with ending balances. The report allows accountants to ensure all asset accounts equal liabilities and equity accounts. Identify the type of transaction and which general ledger accounts it affects. Common journal entries relate to revenue, costs of goods sold, inventory accounts payable or receivable and expenses. Review the information that documents the transaction. Retrieve the dollar amounts associated with the transaction. Prepare a journal entry. Each entry requires a debit and credit, such as balance changes in two separate general ledger accounts. Dollar amounts should equal those in the associated paperwork. List the account number, account name and dollar amount for each debit and credit on separate line in the entry. Post the entry into the general ledger. Enter the dollar amounts into each account, along with a brief yet informative description of the transaction. Tips List debits first and credits second when writing journal entries. Journal entries for large dollar amounts or other significant entries may require authorization from an accounting supervisor. In addition to years of corporate accounting experience, he teaches online accounting courses for two universities. Thomason holds a Bachelor and Master of Science in accounting. Cite this Article A tool to create a citation to reference this article Cite this Article. Page 1

2 Chapter 2 : What is a General Ledger? (with pictures) The general ledger and general journal are part of the double-entry accounting record system. The underlying concept of double-entry system is that every financial transaction has two equal and opposite effects, namely debits and credits. Need not to be balanced. Definition of Journal The Journal is a subsidiary day book, where monetary transactions are recorded for the first time, whenever they arise. It highlights the two accounts which are affected by the occurrence of the transaction, one of which is debited and the other is credited with an equal amount. A short note is given in support of each entry, which gives a brief description of the transaction, known as Narration. Entry having one debit and a corresponding credit. Entry having one debit and more than one credit or entry having more than one debit for a single debit or two or more debit and two or more credits. In the case of compound entry, it should be kept in mind that the total of debit and credit will tally. Definition of Ledger Ledger is a principal book which comprises a set of accounts, where the transactions are transferred from the Journal. While posting entries in the ledger, individual accounts should be opened for each account. At the end of the financial year, the ledger account is balanced. If the amount on the debit side is more than the credit side, then there is a debit balance, but if the credit side is higher than the debit side, then there is a credit balance. In this way both the sides will tally. Key Differences Between Journal and Ledger The difference between journal and ledger can be drawn clearly on the following grounds: The Journal is a book where all the financial transactions are recorded for the first time. The Journal is a subsidiary book, whereas Ledger is a principal book. The Journal is known as the book of original entry, but Ledger is a book of second entry. In journal, transactions are recorded in chronological order, whereas in ledger, transactions are recorded in analytical order. In the journal, the transactions are recorded sequentially. Conversely, in the ledger, the transactions are recorded on the basis of accounts. Debit and Credit are columns in the journal, but in the ledger, they are two opposite sides. In the journal, narration must be written to support the entry. On the other hand, in the ledger, there is no requirement of narration. Ledger accounts must be balanced, but journal need not be balanced. Conclusion In the beginning, we talked about the procedure of recording a transaction. These steps provide a base to prepare the financial accounts of a company. If any of the above steps is missing, then it would be hard to prepare the final accounts. Page 2

3 Chapter 3 : Ledger, General Ledger Role in Accounting Defined and Explained The general journal is the repository for transactions that are not recorded in a specialty journal. Thus, the general journal can be considered an intermediate repository of information for some types of information, on the way to its final recordation in the general ledger. The general ledger represents every active account on this list. Each account has a balance, or account value, which can rise and fall as transactions occur. Account summaries in the ledger show at a glance transaction activity for a designated period as well as the current account balance or, at least, the balance after journal entries were last posted. Ledger T-Accounts When ledger accounts appear onscreen or in print, each usually appears in the form of a T-account, as shown in Exhibit 2. Cash on Hand is an asset account, and this means that debits increase its balance, and credits decrease that total. Figures under "Debits" and "Credits" are the result of posting transactions to the T-account from the journal. Because Cash on Hand is an "Asset" account, it carries a so-called Debit balance. As a result, debit entries increase the balance and credit entries decrease it. Note especially that T-shaped crossing lines help implement a double entry system convention: Debits always appear on the left and credits sit on the right. A sub-ledger is organized and updated in the same way as the general ledger, except that the sub-ledger may include only a few accounts from the chart of accounts. Companies use sub-ledgers to put first data management into the hands of people who engage directly in transaction activity. A "Sales Account" sub-ledger, for instance, might hold only sales-related accounts, such as "Product sales revenues," "Accounts Receivable," "Shipping expenses," and "Cash receipts from sales. This information could include the identities of individual salespeople, for instance, or customers, or product lines, or specific regions. When firms use sub-ledgers in this way, they associate sub-ledger entries with specific accounts in the general ledger. In such cases, the general ledger account is the controlling account or master account for the contributing sub-ledger accounts. Transactions For Different Account Categories Entering Debits and Credits for Different Accounts The kind of impact debit or credit that a "transaction" makes on each ledger account depends on which of five Chart of Account categories includes it. Resources of value the business owns and uses. Debts the business owes. Expenses incurred in the course of business. In practice, even a small organization may list a hundred or more such accounts as the basis for its accounting system, and most organizations use many more. Nevertheless, for bookkeeping and accounting purposes, all named accounts fall into one of the five categories above. Adding and Subtracting With Debits and Credits Every financial transaction brings at least two equal and offsetting account changes. Whether a DR or a CR increases or decreases the account balance depends on the kind of account involved, as shown below in Exhibit 3: Page 3

4 Chapter 4 : General Ledger - Example Template How to use Accounts Explanation The general ledger and general journal help create a double-entry bookkeeping record system, which is used to record financial transactions. These two record-keeping tools record the two different. A T-Account is a visual presentation of the journal entries recorded in a general ledger account. This T format graphically depicts the debits on the left side of the T and the credits on the right side. This system allows accountants and bookkeepers to easily track account balances and spot errors in journal entries. T-Account Debits and Credits Ledger accounts use the T-account format to display the balances in each account. Each journal entry is transferred from the general journal to the corresponding T-account. The debits are always transferred to the left side and the credits are always transferred to the right side of T-accounts. Since most accounts will be affected by multiple journal entries and transactions, there are usually several numbers in both the debit and credit columns. Account balances are always calculated at the bottom of each T-account. Notice that these are account balancesâ not column balances. The total difference between the debit and credit columns will be displayed on the bottom of the corresponding side. In other words, an account with a credit balance will have a total on the bottom of the right side of the account. All contra accounts have opposite balances. Since so many transactions are posted at once, it can be difficult post them all. In order to keep track of transactions, I like to number each journal entry as its debit and credit is added to the T-accounts. This way you can trace each balance back to the journal entry in the general journal if you have any questions later in the accounting cycle. T-Account Format Explained The standard T-account structure starts with the heading including the account name. This section usually forms the top of the T. The left column is always the debit column while the right column is always the credit column. You can see that in the posting examples in the next section. This is the second step in the accounting cycle. Since management uses these ledger accounts, journal entries are posted to the ledger accounts regularly. Most companies have computerized accounting systems that update ledger accounts as soon as the journal entries are input into the accounting software. Manual accounting systems are usually posted weekly or monthly. Just like journalizing, posting entries is done throughout each accounting period. Page 4

5 Chapter 5 : Accounting UnpluggedAccounting Journals and Ledgers â Transaction Posting Accounting U The difference between journal and ledger can be drawn clearly on the following grounds: The Journal is a book where all the financial transactions are recorded for the first time. When the transactions are entered in the journal, then they are posted into individual accounts known as Ledger. Top 10 unbelievable historical concurrencies Also commonly referred to as an accounting ledger, a general ledger is a primary accounting record used by a business to keep track of all the financial transactions the company makes. All financial transactions, debits and credits, are recorded, or "posted," in the general ledger, regardless of whether or not they also post to a subsidiary ledger sub-ledger, such as accounts receivable or cash. When the idea of ledgers was first created, physical ledgers were manually kept, usually in books; with the advancement of technology, most general ledgers are now computerized using accounting software. Such software programs can be purchased over the Internet or from most stores that sell computer software products. Double-entry Bookkeeping At least five types of accounts make up the general ledger: In double-entry bookkeeping, when a transaction occurs, it always affects two of these accounts in equal and opposite ways; it is a debit to one and a credit to another. The total amount of debits should always equal the total amount of credits, so if the two do not match up, it indicates that an error has been made. This comprehensive and balanced format is one reason why the account ledger is used to create financial statements. Ad General and Sub-ledgers As the main accounting record, the general ledger is created first. It is organized by account, with each numbered in a series, and each number is typically five to six digits long. Accounts are delegated a number based on the purpose of the account; this numbering sequence allows information to be found quickly and easily, and is a common business practice. The list of all the accounts in the general ledger is called a chart of accounts, and typically includes between 20 and 30 entries per chart. Sub-ledgers are created to simplify the primary ledger and keep track of a specific type of transaction, providing more detail about those transactions. Common types of sub-ledgers include accounts receivable, accounts payable, cash, and sales. The multiple daily transactions are recorded within these sub-ledgers, and the final, summary value is posted into the general ledger. The concept behind double-entry bookkeeping is that there is always a positive and negative value to every transaction; the strict rules and dependencies built into the double-entry accounting process meant that it was one of the first business processes to become computerized. As a result, the availability and usage of accounting ledger software products increased. Computerized accounting systems allow companies to create very large lists of ledger accounts while still keeping them organized and easy to access. In many cases, systems are set up to automatically feed the correct data into the appropriate financial statement reports. Setting up the general ledger chart of accounts is usually the first task to be completed when installing any computerized accounting software package. A standard chart of accounts is typically included in these software packages, with multiple options for a wide range of industries. Not all companies will need to use all available accounts, however, and should choose only those appropriate for their needs. These transactions are recorded in the general journal first, and typically include more information than is included in the accounting ledger; the balance of each account is not included. As in the accounting ledger, however, the credits and debits listed in the general journal must total zero. Page 5

6 Chapter 6 : Journal and Ledger - Finance and Accounting simplified Convert your daily General Journal data into a more extensive, yet focused, General Ledger using Excel in this tip from Mary Ann Richardson. In the general journal, these records are ungrouped, though they are listed chronologically. Conversely, they are grouped or classified in the general ledger. Proper bookkeeping helps in formulating reliable financial information typically reported on financial statements, which enables better management of your business. You also can easily evaluate its performance. Double-Entry System The general ledger and general journal are part of the double-entry accounting record system. The underlying concept of double-entry system is that every financial transaction has two equal and opposite effects, namely debits and credits. The credit and debit sides must balance once you post all the balances from ledger accounts. The purpose of the double-entry bookkeeping system is to reduce the possibility of errors. However, errors can still occur if the preparer lacks accounting knowledge or if he makes transcription, typing or other errors. General Journal A general journal is the original book of entry, which means that it is the first place you record transactions. When computers and software were not common, the general journal was a big register. Each page had columns for serial number, date, particulars and debit and credit records. A small description also accompanied each transaction. These journals record only specialized transactions, while the general journal records all other transactions. General Ledger A general ledger is a book or file that bookkeepers use to record all relevant accounts. The general ledger tracks five prominent accounting items: Each account is a two-columned T-shaped table. The bookkeeper typically places the account title at the top of the" T" and records debit entries on the left side and credit entries on the right. The general ledger sometimes displays additional columns for particulars such as transaction description, date and serial number. Transactions from the general journal post in general ledger accounts, and then balances are calculated and transferred from the general ledger to a trial balance. Impact of Technology Most accounting software maintains a central repository where you can log ledger and journal entries. In many of these software applications, the data entry person need only click a drop-down menu to enter a transaction in a ledger or journal. Chapter 7 : General ledger - explanation, process, format, example Accounting for Management The book in which ledger accounts are maintained is known by various names such as ledger, ledger book or general ledger. The format of ledger account and posting process The process of posting journal entries to ledger accounts is very simple. Chapter 8 : General Journal Vs. General Ledger Your Business General Ledger Accounts. The complete list of accounts that can appear for the organization's journal and ledger entries is called its Chart of theinnatdunvilla.com general ledger represents every active account on this list. Chapter 9 : How to Prepare Journal Entries for Accounting Bizfluent Copyright  Houghton Mifflin Company. All rights reserved. 1 3 DEMONSTRATION PROBLEM G. Bell, a fitness enthusiast, buys an existing exercise center, Body Firm. Page 6