In this article, you will learn:
- What is General Ledger?
- Simplified Meaning of General Ledger
- Classification of General Ledgers
- Benefits of General Ledger
- Control Accounts
- Types of General Ledger Accounts
- Examples of General Ledger Accounts
- Reasons Why You Need a General Ledger?
- What is a GL Reconciliation Process?
- What is the GL Code?
You need to record various business transactions in your books of accounts based on the dual aspect of accounting. Thus, as per the Duality Principle, each transaction involves a minimum of two accounts while recording into books. This means one account increases and the other account decreases.
Thus, accounts that get Debited or Credited are used to denote the give and take involved in every transaction. So such a system of debit and credit helps in finding out the final position of every item at the end of the given accounting period.
Now, each of your transactions follows a procedure before they are represented in the final books of accounts. First, the transactions are recorded in the Original Book of Entry, known as Journal. Once the Journal is complete, these transactions are then posted to individual accounts contained in General Ledger.
Then, the balance of each of the General Ledger Accounts is posted in your Trial Balance Sheet. Once you complete the Trial Balance, the account balance is finally entered in the income statement and the balance sheet.
So, in this article, you will learn what is a General Ledger, General Ledger examples, and the General Ledger accounts. You will also learn the reasons as to why you need a General Ledger?
What is General Ledger?
General Ledger refers to a record containing individual accounts showcasing the transactions related to each of such accounts. It is a group or collection of accounts that give you information regarding the detailed transactions with respect to each of such accounts.
For example, say you purchase raw material from your vendor William Paper Mill throughout the year. Accordingly, all the cash or credit purchase transactions entered into with William Paper Mill would be recorded under the account of William Paper Mill.
Therefore, a General Ledger helps you to know the ultimate result of all the transactions that take place with regards to specific accounts on a given date.
For this reason, General Ledger is also known as the Principal Book of Accounting System.
So, you need to refer to your Customer’s Account in your General Ledger if you want to know the amount he is expected to pay you on a particular date. Likewise, you need to refer to the Creditor’s Account in your General Leger if you want to know the amount you are liable to pay to him on a specific date.
Simplified Meaning of General Ledger
General Ledger is a principal book that records all the accounts of your company. It is one of the important books of accounts for your business. Furthermore, all the accounting entries are transferred from the Journal to the Ledger.
This means you first need to record a business transaction in your Journal. Remember, you need to record each of them in Journal in the order in which they occur. Once you record the transaction in the Journal, you are then required to classify and transfer it into a specific General Ledger account.
Thus, General Ledger contains individual accounts in which similar transactions are recorded. These transactions relate to an asset, a liability, an individual, or an expense. Let’s take an example to understand how you can transfer the journal entries to General Ledger.
Say you own a publishing house Martin & Co. and purchased 20 kg paper on cash at $20 per kg on December 1, 2020. Therefore, the following is the journal and ledger that you need to record into books for such a transaction.