A general ledger is a paper based journal or electronic program that is used to record every transaction that a company makes. It helps a company to assess its financial condition.
Recording Entries
The opening balance is the first item entered into a ledger, and then, depending on the types of transactions the company makes, entries are recorded as debits (expenses) or credits (revenue) under the appropriate general ledger categories.
Categories
The categories in a general ledger vary according to the bookkeeping style of the company. Common categories include assets, liabilities, owner's equity, revenue, expenses, loan payments and profits and losses.
Sub Ledgers
A general ledger may include several sub ledgers. Sub ledgers are ledgers within the general ledger that expand on the detail of a particular category. For example, an accounts receivable sub ledger may record accounts receivables, accounts payable and cash transactions. All entries recorded in a sub ledger are also recorded in the general ledger.
Features
Electronic general ledgers can vary widely in their capabilities. Some electronic ledger programs have the ability to create graphs and reports out of the recorded entries, while others may support multiple currencies and exchange rates, or have the ability to integrate with the Internet.
Significance
The two primary financial documents of any company are the income statement, which shows a company's revenues and expenses over a specific accounting period, and the balance sheet which shows a company's financial position (assets, liabilities, and owner's equity) at a specific moment in time. Both of these documents are derived from the general ledger, and are required by lenders and banks to determine credit limits.
Fun Fact
A general ledger is also known as a nominal ledger.
0 comments:
Post a Comment