The General Ledger
See how journal entries get posted into accounts, each keeping its own running balance.
TL;DR
- Post each
journalEntryinto the accounts of thegeneralLedger. - Let every account carry its own
runningBalance. - Roll detailed
subsidiaryLedgersup into summary control accounts.
What the Ledger Is
All the AccountsEvery account the business uses lives here.
The full set of accountsSorted by AccountEntries are grouped by account, not by date.
Journal by date, ledger by accountBook of Final EntryWhere transactions come to rest.
Journal first, ledger afterShows BalancesEach account carries its own total.
Read any balance anytimePosting
Copy Each SideMove both sides of an entry into accounts.
Debit to one, credit to anotherKeep the SideA journal debit stays a debit in the ledger.
Debit stays debitPost in OrderWork through entries as they occur.
Chronological postingSoftware Auto-PostsModern tools post the moment you record.
One entry, posted instantlyRunning Balances
Total Each SideAdd the debits and the credits.
Debit total, credit totalTake the DifferenceThe balance is the larger side minus the smaller.
Bigger side - smaller sideAssets Sit on DebitAsset and expense accounts carry debit balances.
Cash normally a debit balanceOthers on CreditLiabilities, equity, revenue carry credit balances.
Loan normally a credit balanceSubsidiary Ledgers
The DetailOne page per customer or vendor.
Who owes what, line by lineControl AccountThe ledger keeps only the total.
General ledger holds the sumThey Must AgreeDetail total equals the control account.
Subledger total = controlKeeps It CleanDetail stays out of the general ledger.
Summary up top, detail belowTips
- Post entries promptly and in order, so each account's
runningBalanceis always current when you need a number. - Use
subsidiaryLedgersfor customers and vendors, so you can see who owes what without cluttering the general ledger.
Warnings
- Posting to the wrong account keeps the books balanced but makes reports wrong, so check the account before you
post. - A
controlAccountthat does not match the total of its subsidiary ledger signals a posting error to hunt down.
In Practice
Post a few entries into the cash account and read off its running balance.
Your cash account starts the month at $8,000. You then receive a $10,000 loan, buy $2,000 of equipment, and pay $1,200 of rent.
- Start: Cash balance $8,000.
- Post the loan deposit: $8,000 + $10,000 = $18,000.
- Post the equipment purchase: $18,000 - $2,000 = $16,000.
- Post the rent payment: $16,000 - $1,200 = $14,800.
The cash account's running balance is $14,800.
Posting rolls journal entries into each account's running balance.
FAQ
The general ledger is the complete set of a business's accounts, where journal entries are sorted by account so each one shows its own history and balance. If the journal is the diary of transactions in date order, the ledger is the filing cabinet where each account collects all its entries. It is called the book of final entry.
Posting is copying each side of a journal entry into the matching account in the ledger. A debit in the journal becomes a debit in that account; the credit lands in the other account. After posting, every account reflects all its transactions, and you can read off its running balance at any time.
Each account totals its debit side and its credit side, and the balance is the difference, carried on whichever side is larger. For a cash account, deposits (debits) add and payments (credits) subtract, so the running balance rises and falls with each posting, always showing the current amount.
A subsidiary ledger holds the detail behind a single general-ledger account. Accounts receivable, for instance, has a subsidiary ledger with one page per customer. The general ledger keeps just the total, called a control account, while the subsidiary ledger shows who owes what. The two should always agree.