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Accounting Training Fundamentals: How to Keep a General Ledger
The book that enables to transfer all the financial transactions into different and separate accounts is called as General Ledger. The process of recording the financial transactions into Journal is called as Journalizing. The process of transferring the journal entries from the general journal to general ledger is called as Posting.
In a general journal, the narration should be there to understand the kind and the nature of entry. The format of a general journal is quite simple and data that includes are a date, debit amount and the credit amount, particulars, ledger folio. The trial balance is checked for errors and adjusted by posting additional necessary entries, and then the adjusted trial balance is used to generate the financial statements.
General Journal vs General Ledger | Top 5 Differences (with Infographics)
A general ledger is used by businesses that employ the double-entry bookkeeping method, which means that each financial transaction affects at least two sub-ledger accounts and each entry has at least one debit and one credit transaction. Double-entry transactions, called journal entries, are posted in two columns, with debit entries on the left and credit entries on the right, and the total of all debit and credit entries must balance. The accounting equation , which underlies double-entry accounting, is as follows:.
The balance sheet follows this format and shows information at a detailed account level. For example, the balance sheet shows several asset accounts, including cash and accounts receivable, in its short-term assets section. The double-entry accounting method works based on the accounting equation's requirement that transactions posted to the accounts on the left of the equal sign in the formula must equal the total of transactions posted to the account or accounts on the right.
The transaction details contained in the general ledger are compiled and summarized at various levels to produce a trial balance, income statement, balance sheet, statement of cash flows, and many other financial reports. This helps accountants, company management, analysts, investors, and other stakeholders assess the company's performance on an ongoing basis.
When expenses spike in a given period, or a company records other transactions that affect its revenues, net income, or other key financial metrics, the financial statement data often doesn't tell the whole story. In the case of certain types of accounting errors, it becomes necessary to go back to the general ledger and dig into the detail of each recorded transaction to locate the issue.
At times, this can involve reviewing dozens of journal entries, but it is imperative to maintain reliably error-free and credible company financial statements. The posted debit and credit amounts are equal. The net result is that both the increase and the decrease only affect one side of the accounting equation. Thus, the equation remains in balance. It is possible for an accounting transaction to impact both the balance sheet and the income statement simultaneously. For related insight into general ledgers, consider reading more about double entry accounting.
Transactions You’ll Enter into a Ledger
General Journal vs General Ledger
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