Terminology
The general ledger contains a page for all accounts in the chart of accounts[3] arranged by account categories. The general ledger is usually divided into at least seven main categories: assets, liabilities, owner's equity, revenue, expenses, gains and losses.[4] The main categories of the general ledger may be further subdivided into subledgers to include additional details of such accounts as cash, accounts receivable, accounts payable, etc.
The extraction of 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.[5]
Process
Posting is the process of recording amounts as credits (right side), and amounts as debits (left side), in the pages of the general ledger. Additional columns to the right hold a running activity total (similar to a chequebook).[6]
The general ledger should include the date, description and balance or total amount for each account.
Because each bookkeeping entry debits one account and credits another account in an equal amount, the double-entry bookkeeping system helps ensure that the general ledger is always in balance, thus maintaining the accounting equation:
The accounting equation is the mathematical structure of the balance sheet. Although a general ledger appears to be fairly simple, in large or complex organizations or organizations with various subsidiaries, the general ledger can grow to be quite large and take several hours or days to audit or balance.[8][citation needed]
In a manual or non-computerized system, the general ledger may be a large book. Organizations may instead employ one or more spreadsheets for their ledgers, including the general ledger, or may utilize specialized software to automate ledger entry and handling. When a business uses enterprise resource planning (ERP) software, a financial-features module produces subledgers and the general ledger, with entries drawn from a database that is shared with other processes managed through the ERP.
The next step involves classifying journal entries as separate accounts in a general ledger.
Resultantly, there will be a cash account, salary account, payables account, etc. Thereafter, relevant debit or credit amounts will be noted in the account’s ledger. Then, debit and credit values will undergo further calculations to arrive at a final balance of different accounts.
Ledger balancing assists in computing how much assets, liabilities
or revenue sources, etc., are left with an organization at the end of an accounting year.
After the ledger entries, the balances of all the ledger accounts are taken to the trial balance sheet. A trial balance is a worksheet with the column of debit and credit corresponding to the rules of double-entry bookkeeping or dual aspect of accounting.
Trial balance holds the balance of all the ledger accounts. If bookkeeping and accounting are done correctly, the sum of the trial balance’s debit side and credit side will match. If it doesn’t, it is an indication of discrepancies or errors and will require rectification.
Only after the balances match, the accounts will be considered for loss or profit calculations using expenses and revenues in the income statement. Also, assets, liabilities, owner’s equity, expenses, and revenue amounts will be taken to the balance sheet.
