General Journal and General Ledger
Posted in PayTraq U, 101, accounting
When someone unfamiliar with modern accounting faces such terms as "general ledger" or "general journal", they imagine giant dusty books, complicated and totally confusing. Of course, such vision of modern accounting is absolutely wrong. Meanwhile, the general ledger is essential for any company’s accounting system.
Historically, journals and ledgers were constantly bound notebooks in which a clerk hand wrote entries right after a sale was closed, a cost become incurred, revenues were received, or any other event took placed that affected the company's records.
Nowadays, of course, journals and ledgers are completely implemented in accounting software. As a result, transaction data are entered manually through onscreen forms or even more often automatically (through bank feeds, point of sales systems). Moreover, software automatically register journal entries to ledger so the don’t need to be transferred manually.
The general journal is a list of all business transactions of a company kept throughout its entire life, all transactions are recorded in a chronological order. It contains all the information needed to prepare financial statements, and describes assets, liabilities, capital, income and expense. Each transaction is recorded as an entry posting with account records.
While in the general journal all transaction records are listed chronologically and are ungrouped, in the general ledger they are grouped and classified by accounts.
The general ledger is a central accounting information repository which stores all transactions from all accounts of the company.
The general ledger report is a summary report shows the totals for each account for a certain period - opening balance, the debit and credit turnover of each account, and final balance. From here you can go to detailed transaction report for every account. This report is useful for checking every account and every transaction you need to verify.
In our previous articles we described the structural principle of accounting entries, defined what chart of accounts is, and explained the idea of an account itself. You need all of this to understand how every operation is actually recoded in bookkeeping and how it is kept afterwards.
Both, the general ledger and the general journal are the key accounting information sources to create reports. They allow us to build up a trial balance, a detailed account report or a counterparty statement.
The general ledger provides the transaction history and current balance in each accounting system account.
At the end of the period, general ledger therefore serve as the authoritative source of data for building a company's financial reports, such as income statement and balance sheet.
In those days when bookkeeping was not done by means of software, the general ledger was the only tool to trace mistakes and transfer figures required for reporting. Back then, it was really hard to keep, maintain and check the general ledger properly, as the chance to make a mistake was pretty high.
Nowadays, the use of modern accounting software has changed everything. The general journal and the general ledger are maintained automatically, no longer requiring any effort from the user.
When an operation is started, accounting system immediately checked it for errors, recorded in the general journal, and at the same time registered in the general ledger as well as presented in any other types of reports.