The Journals and Ledgers are where all information is entered in a bookkeeping system. The three main books are the Journals, General Ledger, and Subsidiary Ledgers. Information is entered into these books on an ongoing basis. Gaining an understanding of how these books are used and how data is transferred between them will help form the foundation of your bookkeeping skills.
The Journals are known as the Original Books of Entry. As information is received in the form of receipts, invoices, checks, bank deposits, etc., it is recorded in one of the Journals. Some businesses will have more journals than others. The number of journals used is determined by what kind and size of business it is. For smaller businesses some journals can be combined into one.
Every business has only one General Ledger. The General Ledger is known as the Final Book of Entry because it summarizes the information contained in the Journals. This summary of information is then used to create the Balance Sheet and Profit & Loss (Earnings) Statement.
In bookkeeping the information from the Journals is entered into the General Ledger at the end of each month. The information in the General Ledger is therefore constantly changing. It is never final until a business is closed.
The Subsidiary Ledgers are known as the Books of Analysis. These books break down into detail the information found in the General Ledger, giving specifics such as how much each customer owes, or how much a company owes each vendor it makes purchases from. In this section we will discuss each of the books in greater detail.
Many small businesses overlook the importance of the detail provided by the Subsidiary Ledgers. The data they contain can be a gold mine of information in analyzing different aspects of a business’ performance.
Again, the journals and ledgers are the ‘books’ in bookkeeping. Knowing how to use them and read them properly will help you to do more than just accounting. It will give you the tools to help businesses succeed.