![]() ![]() Here are some examples of common sub-ledgers: Then, you summarize that information in a master notebook-the general ledger. Sub-ledgers are like notebooks you use to write down business transactions as they happen. The money your business earns and spends is organized into subsidiary ledgers (also called sub-ledgers, or general ledger accounts). The different types of general ledger account Your income statement tracks your income, while your balance sheet tells you how much money you have and owe. Using the information above, you can create an income statement or balance sheet for your business. In this example, we’re looking at one month in the general ledger of an Etsy store that sells personalized hand puppets: DateĪmounts in brackets are expenses-reductions in equity. Here’s a very simple example of a general ledger, using the single-entry bookkeeping system (more on that later). But since bookkeeping by hand takes 1,000 times longer, most business owners and bookkeepers use accounting software to build their general ledgers. Of course, it’s still possible to do your bookkeeping with a paper ledger. In the past, the general ledger was literally a ledger-a large book where financial data was recorded by hand. It lists every accounting transaction for you to review. However, some subledgers,such as accounts receivable, inventory, fixed assets, accountspayable and payroll can prove to be a challenge in their dailymaintenance.The general ledger (also called a general journal or GL) summarizes all the financial information you have about your business. Subledgers showing cash receipts and cashdisbursements are pretty easy to follow. ![]() The information isthen taken in a summary format from the subledgers and transferredto the general ledger. ![]() While many double entries are made directly to the generalledger, it is necessary to maintain subledgers for a number ofaccounts in which there is regular activity. In a general ledger, debits always go on the left and creditsalways go on the right. These basic relationships are summarized as follows: AccountType It won't take many 3 a.m.error-finding sessions in a manual system to persuade you toautomate your bookkeeping system!Īll debits and credits either increase or decrease an accountbalance. A key advantageof any automated bookkeeping system is that it will police yourdebit-and-credit entries as they are made, making it far moredifficult not to balance. It is when the debits and credits are not equalor do not offset that your books don't balance. In fact, if you can gaineven a basic understanding of debits and credits, you will be wellon your way to understanding your entire accounting system.Īs outlined above, for every debit, there should be an equal andoffsetting credit. The system used in recording entries on a general ledger iscalled a system of debits and credits. When you sell goods on account, you record a sale(income) but must have a journal entry to make sure you collectthat account later (an account receivable). And that makessense, because for every financial transaction in your business,the money (or commitment to pay) goes from one place to another.For instance, when you write your payroll checks, the money flowsout of your payroll account (cash) into the hands of your employees(an expense). Other examples of source documents include canceledchecks, utility bills, payroll tax records and loan statements.Īll general ledger entries are double entries. And yoursource documents are a required component for your accountant attax time. Your source document will prove otherwise. Forinstance, a customer might claim that he never received an invoicefrom you. Source documents are critical inthat they provide an audit trail in case you or someone else has togo back and study financial transactions made in your business. Two examples of source documents are copies of invoicesto customers and from suppliers. An important component of any general ledger is sourcedocuments. ![]()
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