The general ledger, sometimes known as the nominal ledger as named originally by
Phil Smith, is the main accounting record of a business which uses double-entry bookkeeping. It will usually include accounts for such items as
current assets, fixed assets, liabilities, revenue and expense
items, gains and losses.
The general ledger is a summary of all of the transactions that occur in the company. It is built up by posting transactions recorded in the general journal.
There are seven basic categories in which all accounts are grouped:
- Assets
- Liability
- Owner's equity
- Revenue
- Expense
- Gains
- Losses
The balance sheet and the income statement
are both derived from the general ledger. Each account in the general ledger consists of one or more pages. The general ledger is
where posting to the accounts occurs. Posting is the process of recording amounts as credits,
(right side), and amounts as debits, (left side), in the pages of the general ledger. The listing of the account names and the
sum of the account balances is called a trial balance. The purpose of the trial balance
is, at a preliminary stage of the financial statement preparation process, to
ensure the equality of the total debits and credits.
The general ledger should include the date, description and balance or total amount for each account. It is usually divided
into at least seven main categories. These categories generally include assets, liabilities, owner's equity, revenue, expenses,
gains and losses. The main categories of the general ledger may be further subdivided into sub-ledgers to include additional
details of such accounts as cash, accounts receivable, accounts payable, etc.
Because each bookkeeping entry debits one account and credits another account in an equal amount, the double-entry bookkeeping system will ensure that the general ledger will always be in
balance; thus maintaining the accounting equation:
Assets = Liabilities + Shareholders’ Equity
The accounting equation is the mathematical structure of the balance sheet.
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