Keeping Track of Transactions – Meet the General Ledger
The general ledger is like a file cabinet for all your accounts. Each account gets its own page, and every entry that affects that account is recorded there.
In that way, the general ledger acts as a summary of your journals, which are books where all the transactions originally are recorded. Rather than duplicate the line-by-line entries, you will transfer daily or weekly totals (depending on your transaction volume) to each account’s general ledger page.
For accounts that attract lots of volume, you can use subsidiary ledgers to hold more detail, and use summary totals from there to fill out your general ledger. You will also use a subsidiary ledger to keep track of the detail that makes up your accounts receivable and accounts payable accounts.
The accounts receivable ledger contains a page for each customer that your company extends credit to; the accounts payable ledger has a separate page for each vendor that lets your company buy on credit.
What a Ledger Page Looks Like
The general ledger serves to sort transaction information by account, and that includes specific details. To keep things consistent, the necessary pieces of information are recorded in columns. That way, if you need to go back to look up something for a particular account, the information is laid out for you in a uniform way, making it easier to find.
The basic columns in a general ledger include things such as the date, the dollar amount of the debit or credit, posting information (which you’ll learn about later in this chapter), and a brief description of the transaction.
For example, the page for postage expense in the general ledger might look like this:
Postage Expense
| Date | Description | Journal | Debit | Credit | Balance |
|---|---|---|---|---|---|
| 3/04/06 | sent package to client | CJ2 | 15.60 | 15.60 | |
| 3/16/06 | bought stamps | CJ2 | 37.00 | 52.60 |
Checking the Balance
While some accounts, such as expenses, tend to have mainly debit or credit entries, there are others that have a mix of both (such as cash). When an account has both debit and credit entries, it’s very common to make mistakes in the balance column, and that can affect reports going forward.
Every once in a while, add all the entries in each column to get a total at the bottom (this is called footing the columns). Then combine the debit and credit columns to make sure that their total matches the total balance column (this is called crossfooting). If they don’t equal now, there is a mistake somewhere in one of the columns, probably the balance column. Recheck your math in the balance column to find and correct the mistake.