How Does a General Ledger Account Work?

How Does a General Ledger Account Work?

General Ledger

A general ledger consists of the collected works of the company's accounts that is generally arranged in a double entry format labeled as debits on the left side and credits on the right side for every transaction. Although, the general journal is organized in a way as a sequential record of business transactions, the ledger is actually organized and set up according to accounts. The accounts of the general ledger often take the form of simple two-column T-accounts. Sometimes, the general ledger of a company's official records may include a third or fourth column as well to display the running account balance after each posting.

Debit and Credit Entries on the General Ledger

Debit and credit entries in a general ledger impact no more than two ledger accounts and it is normal to have plenty of information cited in each part of the entry in order to identify and relate to the other entries. All general ledger accounts, in the chart of accounts, are grouped into one of five categories referred to as assets, liabilities, revenue, owner's equity and expenses. There are several things the general ledger provides within its data to create other forms such as the Balance Sheet, the Single-Step Income Statement or the Multi-Step Income Statement which depending on which format a company chooses. The general ledger can be in electronic form or via physical, manual input depending on whether you prefer computer software or a manual system. Most companies use a computerized version of the general ledger to allow them to have a more flexibility. For many, the computerized general ledger system provides easier data entry and the reporting of transactions.

How Does a General Ledger System Work?

With a general ledger, you are to note the direct mapping between the journal entries and the ledger postings. Inputting of general ledger journalized transactions may appear to be unnecessary since the transactions are already previously recorded in the general ledger journal. However, the general ledger allows a person to view the activity and balance of each account at a glance. Considering the posting to the ledger is simply a form of reorganization of the information requiring no extra decisions, it is easily performed with accounting software when the journal entry is made or as a group process such as at the end of the day or week. In addition, general ledger accounts may use reference numbers so that each posting can be traced back to its original journal entry.