The General Ledger is known as the final book of accounting. This is because the month end totals from the different Journals are transferred to their corresponding accounts in the General Ledger at the end of each month (or more frequently, depending on the business).
There are four categories of accounts in the General Ledger. They are Assets, Liabilities, Capital and Accrual. Each of these categories contains different accounts. For example, the Assets category may have the following accounts: Bank, Petty Cash, Cash On Hand and Inventory.
The accounts under each of these categories are found in the chart of accounts and are known as balance sheet accounts since they make up the four categories of accounts that are used to create a balance sheet report. The General Ledger contains a separate page for each and every balance sheet account.
On a side note, a Balance Sheet shows the totals of each of the balance sheet accounts. The total of all Asset accounts should equal the totals of all Liability, Capital, and Accrual accounts. This equation looks like this:
Assets = Liabilities + Capital + Accrual
Each page (account) in the ledger has four columns. The first is a Reference column for marking which journal the amount came from. The second is the Debits column and the third is the Credits column. The fourth column is where you record the balance of that account after posting to it from the journals. And of course it is important to put the account name and number at the top of each page.
Here is a rough example of how information is posted to a General Ledger page (account) from the Journals:
Let’s say it is the end of the month and you are posting to the Bank account page in the General Ledger from the Cash Receipts Journal for that month. If you had made 10 deposits throughout the month totaling $5,500 which you posted to the Cash Receipts Journal, you would put that amount in the debit column of the Bank Account Ledger. If you had purchases from the bank account entered in the Cash Disbursements Journal totaling $4,800 for the month, you would put that in the Credits column of the bank account. You would then calculate the balance of $700 and enter it in the Balance column. This total could then be transferred to the balance sheet under Assets.
This is a simple example, and there is much more to it than this, including making sure each account is balanced correctly.
Although a company may have many Journals and Subsidiary Ledgers, it will have only one General Ledger. This is true for any company, no matter how big or small. Working with journals and ledgers makes up the bulk of a bookkeeper’s work and is simply data entry. Knowing how to work with the General Ledger, on the other hand, is what takes you beyond bookkeeping and into creating financial reports. If a business understands the picture its figures are painting, it is in a good position to make financial decisions.