Accounting ledgers are an essential aspect of small business bookkeeping. As a small business owner, you need to be aware of all the transactions your business has completed in an accounting period. That’s where the ledger comes into play.
Accounting Ledgers Defined
An accounting ledger is part of the bookkeeping system where a business records all its financial transactions. A business will create separate categories for such transactions- these are known as accounts. All accounts of a company will be listed and contained within the general ledger, or principal book of accounts.
The general ledger must include all accounts of a business that will appear on their financial statements at the end of an accounting period. These are known as general ledger accounts (GL accounts). The five key GL account types are as follows:
- Revenue/ Income
What is the Purpose of an Accounting Ledger?
All financial transactions of a company must be accounted for. The GL accounts will possess a list of all transactions involving that specific account. These entries will correspond with the company’s journal entries– which record all increases and decreases to accounts.
Every accounting period, these entries and account listings are compiled into the essential financial statements of a business, including the balance sheet and income statement. It is these documents that reflect the overall financial position of a company. Such information is used internally and externally to measure the success of a business and ensure that all dealings meet governing body regulations.
Subsidiary Ledgers and Control Accounts
As the general ledger contains all accounts associated with the business, these accounts are sometimes so large that they need to be broken down into further detail. This is where subsidiary ledgers come into play. A separate subsidiary ledger is created for the recording of these lower-level accounts.
A general ledger account that holds all subsidiary ledger accounts is known as a control account.
What are the Different Types of Ledgers?
The most common book of accounts for any business will be the general ledger, the sales ledger, and the purchase ledger. Within these ledgers will sit the accounts associated with them. The purchase ledger is also known as the accounts payable ledger. Even though it lies within the Liabilities account, there are so many corresponding journal entries and transactions associated with the accounts payable, that it typically needs an entire ledger to track such things.
Chart of Accounts
Within a general ledger contains a chart of accounts. This chart is a list of all accounts that can be found within the ledger, and that are used by the business. Below is an example of the different accounts that are contained within a general ledger.
By no means are these the only accounts that will show up in the ledger. As a business has an expansive list of accounts, you will need to make as many as required to track all types of transactions. For example, the asset accounts could contain cash in hand, cash in bank, accounts receivable, prepaid expenses, real estate, machinery, inventory, and more.
How do you fill out an accounting ledger?
To correctly record an increase or decrease to an account within your business, you will need to use a debit and credit for the double-entry bookkeeping method. This is a principal method of accounting in which transactions are recorded in at least two journal entries- a debit to an account and a corresponding credit to an account.
Here are the steps you need to take to fill out an accounts ledger:
- Create a ledger per account type, filling out the account and account number
- Add columns for the date, journal reference or number, and description
- Another column for the debits, credits, of the transaction and the balance
- Take the journal entry information and re-enter into the corresponding account
- Record all transactions and adjust entries when needed
- Combine all account information to create a ledger
What is the Difference Between a Journal and a Ledger in Accounting?
An accounting journal is filled with individual entries that record the transactions of a business’s accounts. A ledger keeps track of all the accounts of a business, which have been used in their journal entries.
What does a General Ledger look like in Accounting?
Below is a template for a general ledger to show you the format and layout of the debit and credit system, and the required information needed for each ledger entry. Download this general ledger template and you can begin using it for your business.
Where once all journal entries and general ledger accounts were manually recorded by hand, now technology can automate the accounting process. Quality accounting systems have become a staple for small businesses everywhere, as they are essential to the management of accounts and organized record keeping.
This software ensures the general ledger will sort all transactions through the proper accounts to create accurate financial records. With QuickBooks for Small Businesses you can connect all of your business accounts seamlessly and track all expenses in one place.