General Ledger - BC Bookkeeping Tutorials|

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General Ledger

General Ledger Journals
General Ledger
and Chart Of Accounts

In a prior lesson, we used T-Accounts to record the transactions for ABC, the lawn mowing guys.

What you didn't know at the time is that we were actually recording  transactions in General Ledger Accounts.

A General Ledger is just a formal set of T-Accounts. 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 that we studied in previous lessons. 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 + Increases – Decreases

If you noticed in my above equation I used the terms increases and decreases. If you also recall in our discussion about debits, I tried to stress the fact that when applied to bookkeeping these terms need to be associated with the types of accounts .

We also should know by now that the type of accounts have a normal balance that is either a debit or credit balance. So actually the above equation is stated in two ways. The equation is stated one way for debit balance accounts, and another way for credit balance accounts.

Using our bookkeeping terms debits and credits, we come up with the following equations:

Debit Balance Accounts Equation
Ending Account Balance for Normal Debit Balance Accounts = Beginning Balance + Debits(Increases) – Credits(Decreases)

Credit Balance Accounts Equation
Ending Account Balance for Normal Credit Balance Accounts = Beginning Balance + Credits(Increases) – Debits(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.

One other record that goes hand in hand with the general ledger and that we’ve touched on before and used in a prior lesson is The Chart Of Accounts .

Remember The Chart Of Accounts is simply a listing of all the accounts in the general ledger that contains the account’s name, a brief description of the account, and usually an account number assigned to aid in recording and tracking transactions.

It’s chief purpose is to serve as an aid (reference) for looking up accounts and their associated account numbers.

For this lesson, we expanded our chart of accounts by adding account numbers and grouped the numbers into ranges that represent the major type of accounts.

Chart Of Accounts For ABC Mowing
Note: The charts of accounts used in this tutorial were purposely kept simple and used to illustrate what the chart of accounts is and how it’s used. For those of you that are curious, I’ve provided a detailed list of the accounts you might encounter in the “real” world. Often a numbering system is set up with a range of numbers for assets, liabilities, equity, revenue, and expense accounts.

ABC Mowing Chart Of Accounts Assets have a range from 100-199 ; Liabilities a range from 200-299; Equity a range from 300-399; Revenues a range from 400-499; and Expenses a range from 500-699.
Chart Of Accounts ABC Mowing
Assets (100-199)
Account Name:Cash
Account Number:100
Description:Currency , checks, and bank balance
Equity (300-399)
Account Name:Owner's Capital
Account Number:300
Description:Amounts invested by owner and earned by operations
Account Name:Accounts Receivable
Account Number:110
Description:Amounts due from customers for services rendered
Account Name:Owner's Draws
Account Number:310
Description:Amounts withdrawn by owner for personal expenses
Account Name:Inventory-Office Supplies
Account Number:115
Description:On hand supplies of such items as copier & computer paper, pens, and other office supplies
Revenue (400-499)
Account Name:Mowing Revenues
Account Number:400
Description:Earnings from mowing and landscaping
Account Name:Mowing Equipment
Account Number:150
Description:Mowers purchased
Expenses (500-699)
Account Name:Advertising Expense
Account Number:510
Description:Expenditures for TV, radio, newspaper, and other promotions
Liabilities (200-299)
Account Name:Accounts Payable
Account Number:200
Description:Amounts owed suppliers for business purchases and expenses
Account Name:Mulch Expense
Account Number:520
Description:Expenditures for mulch used for yard work
Account Name:Note Payable-Bank
Account Number:210
Description:Mortgages and loans owed to bank

Of course most businesses have many more than our eleven accounts we used for our sample ABC business. Can you think of some other accounts that we might need and want ? How about telephone, utilities, professional fees (that’s me), salaries & wages, equipment rental, building rental, maintenance & repairs, contract labor, office equipment just to name a few.

Sample Balance Sheet and Income Statement Detail Accounts

Now, let's take a look at what a
Formal Journal and General Ledger Account look like.
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