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 by account. In casual use the accounts of the general ledger often take the form of simple two-column T-accounts. In the formal records of the company they may contain 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 following transactions taken from the example on general journal entries:

Date	Account Names	Debit	Credit
9/1	Cash	7500
	Capital		7500
9/8	Bike parts	2500
	Accounts payable		2500
9/15	Expenses	1000
	Cash		1000
9/17	Cash	400
	Accounts Receivable	700
	Revenue		1100
9/18	Expenses	275
	Bike parts		275
9/25	Cash	425
	Accounts receivable		425
9/28	Accounts payable	500
	Cash		500

The above journal entries affect a total of seven different accounts and would be posted to the T-accounts of the general ledger as follows:

General Ledger

(T-Accounts)

Cash Sep 1 7500 17 400 25 425 Sep 15 1000 28 500

Accounts Receivable Sep 17 700 Sep 25 425

Bike Parts Sep 8 2500 Sep 18 275

Accounts Payable Sep 28 500 Sep 8 2500

Capital Sep 1 7500

Revenue Sep 17 1100

Expenses Sep 15 1000 Sep 18 275

Note the direct mapping between the journal entries and the ledger postings. While this posting of journalized transactions in the general ledger at first may appear to be redundant since the transactions already are recorded in the general journal, the general ledger serves an important function: it allows one to view the activity and balance of each account at a glance. Because the posting to the ledger is simply a rearrangement of information requiring no additional decisions, it easily is performed by accounting software, either when the journal entry is made or as a batch process, for example, at the end of the day or week.

Finally, while such T-accounts are handy for informal use, in practice a three-column or four-column account may be used to show the running account balance, and in the case of a four column account, whether that balance is a net debit or credit. Additionally, reference numbers may be used so that each posting can be traced back to its original journal entry.