|
Each account that we want to track and keep up with has a separate page or pages maintained in a record book
called the General Ledger. The book is organized into major sections just like the Accounting Equation.
Do you have any idea what these sections might be ? Come on this question is not that hard. The general
ledger's major sections are Assets, Liabilities, Owner's Equity, Revenues, Expenses, and Draws.
For each item (account) in our General Ledger, we record the increases and decreases for a period
(usually a month) and calculate its ending balance. The ending balance of the account is easily determined
by adding the increases and subtracting the decreases from the account's beginning period balance.
Ending Account Balance = Beginning Balance plus Increases minus Decreases. Simply stated a General Ledger is
just a book containing the summarized financial transactions and balances of the accounts for all of a
business's assets, liabilities, equity, revenue, and expense accounts.
Methods and symbols you might run across that indicate an account's balance is a debit or credit
amount are - (1) Parentheses indicate a credit balance and no parentheses indicate a debit balance. (2) Brackets
indicate a credit balance and no brackets indicate a debit balance. (3) Dr indicates a debit balance
and Cr indicates a credit balance. (4) Plus Sign indicates a debit balance and Minus Sign indicates
a credit balance. Note- The plus and minus are often used by accounting and bookkeeping software
programs to indicate debits and credits. Don't get confused and think that the plus sign means
an increase or that the minus sign means a decrease. They do not. In this case,
they are simply symbols that mean either a debit or a credit.
It logically follows that since we only want summary amounts in our Ledger we need to record the
detail entries some place else first. What record(s) do you use to do this ? Your right ! Journals are the
preliminary records. All transactions are first entered in a preliminary record called a journal or
book of original entry. This process is called journalizing. After your business transactions have been
entered in your journals, they are then periodically (usually monthly) summarized and totaled and then
transferred (posted) to the General Ledger as summary entries.
Specialized Journals are journals used to initially record and group special types of transactions such
as sales, cash disbursements, and cash receipts in their own journal. Some Special Journals a business will
normally have are-Cash Receipts Journal, Cash Disbursements Journal (Check Register), Payroll Journal,
Sales Journal, Purchase Journal, and the General Journal. All these journals are designed to record special
types of business transactions and post the summarized debit and credit totals accumulated in these journals
to the General Ledger periodically (usually once a month).
|