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General Ledger Entries

Accounting > General Ledger

Accounting

The General Ledger

The general ledger is a collection of the firm's accounts. While the general journal is

organized as a chronological record of transactions, the ledger is organized byaccount. In casual use the accounts of the general ledger often take the form ofsimple two-column T-accounts. In the formal records of the company they maycontain a third or fourth column to display the account balance after each posting.

To illustrate the posting of transactions in the general ledger, consider the followingtransactions taken from the example on general journal entries:

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Date Account Names Debit Credit9/1 Cash 7500

Capital 7500

9/8 Bike parts 2500

Accounts payable 2500

9/15 Expenses 1000Cash 1000

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and in the case of a four column account, whether that balance is

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General Ledger Entries

Note the direct mapping between the journal entries and the ledger postings. Whilethis posting of journalized transactions in the general ledger at first may appear to beredundant since the transactions already are recorded in the general journal, thegeneral ledger serves an important function: it allows one to view the activity and

Cash Accounts Receivable

Bike Parts Accounts Payable

Capital Revenue

Expenses

Sep 1 750017 400

25 425

Sep 15 100028 500

Sep 17 700 Sep 25 425

Sep 8 2500 Sep 18 275 Sep 28 500 Sep 8 2500

Sep 1 7500 Sep 17 1100

Sep 15 1000Sep 18 275


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General Ledger "Balance Sheet" Accounts

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The illustration below shows the relationship between debits and credits in double-entry bookkeeping:

The following outline describes in greater detail the four major divisions of the General Ledger Balance Sheet accounts:

I. ASSETS WHAT WE OWN (Debit balance accounts)

II. LIABILITIES WHAT WE OWE (Credit balance accounts)

III. ACCRUALS (Credit balance accounts)

A. Current Accounts that show assets with continued activity and turnover within the year.

B. Property, Plant and Equipment Accounts reflecting assets owned but not intended to have a quick

turnover. These items are marked down (depreciated) gradually over a number of years specified by the IRS.

C. Other Assets that do not have a quick turnover and are not depreciated.

A. Current Liabilities with continual activity and turnover within the year.

B. Long-Term Contracts payable beyond one year.

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http://www.know-accounting.com/accounting-articles/balance-sheet.html (3 of 4) [2/6/2011 12:06:30 ]

IV. CAPITAL (Credit balance accounts)

A simple way to illustrate the function of the General Ledger is to describe it as a book which shows the classification

and dollar value of what we own (asset accounts=debit balance) and the source from which these assets came

(liabilities, accruals, investments, earnings accounts=credit balance).

Accounting Made Easy, Module I of the Professional Bookkeeper Program, explains General Ledger Balance

Sheet Accounts in detail.

A. Accumulated Depreciation Accounts that represent markdowns in the value of fixed assets.

B. Bad Debt Allowance Shows markdowns in accounts receivable.

A. Owners' Investment/Owners' Equity Cash or other assets invested in a business by a proprietor or partner.

During the first year of business, assets invested by owners are recorded in "Owner's Investment" account(s). At

year's end, these assets are to be permanently transferred into a new account called "Owners' Equity."

B. Capital Stock, Retained Earnings (in a corporation)

C. Draw of Proprietors/Partners (in a single proprietorship or partnership)

D. MEMO: Annual Earnings not a General Ledger account. "Annual Earnings" is only a Balance Sheet statistic.

Click HERE to see what else is taught in Module I.

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Business Accounting Guides

The Adjusted Trial Balance in the Accounting Cycle

Online Accounting

Accounting Training: The Adjusted Trial Balance in t he Accounting Cycle

The adjusted trial balance lists the account balances in the general ledger after t he adjustingentries are made.

The adjusted trial balance sheet is used to verify the balance of debits and credits after the adjusting entries

are made in the accounting cycle, and to review the balances of each account in preparation of closing entriesin the next step in the accounting cycle.

Companies will generally prepare the accounting trial balance on a monthly or quarterly basis, in addition to

Trial Balance|Adjusted Trial Balance

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year-end, in preparation of periodic financial statements.

A sample trial balance appears below for Sunny Sunglasses Shop for January 2010, with each account affectedby the adjusting entries highlighted.

Sunny Sunglasses ShopAdjusted Trial BalanceJanuary 31, 2010

Adjusted Trial Balance with Adjusting Entries Highlighted

The account balances in the general ledger are each carried over into the adjusted trial balance sheet.

The adjusted trial balance now contains all of the general ledger accounts active after the adjusting entry process.

Two new general ledger accounts were added after estimating the uncollectible amount of accountsreceivable: Allowance for doubtful accounts, and bad debt expense. The allowance for doubtful accountsreduces the asset, accounts receivable, by $58. The bad debt expense reduces net income and,

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consequently, owners equity, in January.

Adjusting Entries for Accounts Receivable Reduces Assets andOwners Equity

Assets = Liabilities + Owner s Equity

= $0 +

The adjusting entries process added five other new accounts in the adjusted trial balance: interest payable,payroll taxes payable, wages payable, insurance expense, and interest expense.

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The other three accounts highlighted, prepaid insurance, payroll taxes, and wages, had additional activity asa result of the adjusting entries.

The debit column lists the total of assets, cost of goods sold, and expenses. The credit column lists thetotal liabilities, owners equity, and revenue accounts. After the adjusting entries are made, the total debitsequal the total credits.

The accounting trial balance contains all of the information that Sunny Sunglasses Shop needs to prepareclosing entries and the financial statements for January.

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The adjusted trial balance worksheet serves two main purposes:

It verifies the equality of the debits and credits after the adjusting entries. It provides a listing of each account balance to facilitate the period close in preparation of the financial

statements.

From the Adjusted Trial Balance to Step 7 in the Accounting Cycle: Preparing the Earnings

Statement|I ncome Statement Example

Back to the Online Accounting Main Page

Back to the Accounting Cycle and Double Entry Accounting Main Page

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6 comm ents to Adjusted Trial Balance

jeanelle

August 11, 2010 at 4:17 am

how about unused supplies? how do you do adjusted entries then???

Kenneth F. Meunier

August 12, 2010 at 3:42 am

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9/13


Hi Jeanelle,

Generally supplies can remain in the supplies expense account if they are immaterial to the overall operationsof the company. If supplies are more significant in value to the company, then an adjustment can be madeby debiting supplies on hand, an asset account, and crediting supplies expense for the amount still on hand atthe end of the reporting period (e.g. the year).

Rosanne

March 1, 2011 at 10:56 pm

I am taking an online accounting class and looking for helpful tools/tips on how to enter my adjustmentscorrectly into the adjusted trial balance for the debits and credits to balance?

Kenneth F. Meunier

March 1, 2011 at 11:41 pm

Hi Rosanne -

Please see step five in the accounting cycle, which specifically discusses adjusting entries.

Thank you for your comment -

Kenneth

Nicole

April 3, 2011 at 8:53 am

What accounts are listed in the adjusted trial balance section?And what accounts are listed on the post closing trial balance section?

Kenneth F. Meunier

April 3, 2011 at 9:05 pm


S | S l
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10/13

Business Accounting Guides

Income Statement Example: Preparingthe Earnings Statement

Online Accounting

Accounting Training: Preparing t he Earnings Statemen t in theAccounting Cycle

The financial statements are the final product in the accounting cycle.

This income statement example goes over preparing the earnings statement in the accounting cycle. Theincome statement is also called the profit and loss statement, or the earnings statement.

Earnings Statement|Income Statement Example

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The end result of the accounting cycle was summarized in the adjusted trial balance. From the adjustedtrial balance, we now have all of the account balances necessary to complete the earnings statement, thebalance sheet, and the statement ofcash flows for January.

We now use the sales and expense accounts on the adjusted trial balance, highlighted below, to preparethe earnings statement. Earnings statement accounts are called nominal or temporary accounts because they are closed after thereporting period to start a new balance in each account. For example, if we report income for the year 2010,we want a new balance of zero to start the new year.

Balance sheet accounts, on the other hand, are called real orpermanent accounts because they continue to accumulate forthe life the asset, liability, or equity account.

Sunny Sunglasses ShopAdjusted Trial BalanceJanuary 31, 2010

Adjusted Trial Balance with Earnings Statement Accounts Highlighted


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Sunny prepared the January earnings statement from the adjusted trial balance accounts highlighted aboveas follows:

Sunny Sunglasses ShopEarnings StatementJanuary 31, 2010

Income Statement Example|January Earnings Statement

He used two revenue accounts, the net sales account (net of returns) of $11,680, and the repair revenue of$20 under other incomeon the adjusted trial balance, to fill in revenue for January on the income statement.

The Earnings Statement FormatThe earnings statement separates revenue from the main operations of the business, called operatingincome, from revenue incidental to the business. Similarly, the earnings statement separates operating


http://business-accounting-guides.com/wp/wp-content/images/Jan.Income.Statement.gif


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expenses from those expenses that do not directly contribute to the generation of revenue.

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Since Sunny Sunglasses Shop sells Sunglasses, the main operating revenue is from sales. Repairing sunglassesis incidental to the business and categorized outside of operating income. Similarly, accountants do notconsider interest and taxes as an operating expense, and separate it from the main operating expenses ofthe business.

Sunny then used each expense account to arrive at the net income of $248 (total revenue less total expenses).The business made a small profit during the f irst month of operations.

The business has completed the production of the monthly income statement from the accounting cycle.

Income Statement Example: Preparing the Earnings Statement inthe Accounting Cycle

Financial statements are produced from the account balances in the adjusted trial balance.

The earnings statement is created from the nominal ortemporary accounts highlighted above.

The balance sheet is created from the real or permanentaccounts . Real accounts are the assets, liabilities, and owners equity discussed in thenext section.

From the Income Stat ement Exam ple to the Next St ep in the Accounting Cycle: Preparing the

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