General Ledger Accounting

General ledger is a set of accounts which records day to day transaction of business entity by using double entry accounting method. General ledger is summary of all the subsidiary ledger in which all the transaction has been recorded. Each transaction has two part one is debit and one is credit and total debit balance of general ledger will always match with total credit balance.

Types of General Ledger accounting: General ledger are divided in to five parts which are as follows:

1. Assets: All types of assets which is owned and used by the entity for business operations are recorded under assets. It may be current or non-current, intangible or intangible. This ledger incudes cash, bank, land & building, debtors, Plant & Machinery, Copyright, Trademark, Furniture & fixture.

• Liabilities: This ledger pertains to financial obligation which entity owes to outside. This also includes current liabilities & non-current liabilities. This sub-ledger includes creditors, long-term borrowings, short-term borrowing.

• Capital Ledger: This ledger pertains to the money invested in the entity. This includes equity, general reserve and retained earnings out of the profit. Drawing will also fall under this ledger.

• Revenue: This ledger pertains to the income earned by the company either from the main business of the entity or from other sources. This includes income from sales, interest, discount received, dividend, investment (Capital Gains).

• Expenses: This ledger pertains to the all expenses incurred by the entity for the business operation it may be direct expenses or indirect expenses. Direct expenses include purchase account where cost of raw material has been posted and indirect expenses includes day to day operational expenses like rent, electricity, maintenance & other utility expenses.                

 Benefits of General Ledger Accounting:

1. General ledger helps in preparation of trial balance which is essential requirement for preparation of financial statement.
2. General ledger will provide financial position of the business entity at any point of time because in general ledger all items are recorder separately according to the nature.
3. General ledger is prepared by using double entry method of accounting therefore chances of mistake is very minimum.
4. General ledger also facilitates in bank reconciliation because all the bank related transactions are posted at one place.
5. In General ledger all the transactions are recorded in separate head this helps in analysis and comparison with last year and accordingly measures can be taken for future.
6. General ledger also helps in preparing of accounting ratio and ration analysis.
7. With the help of general ledger amount receivable from debtors and amount payable to creditors can be ascertain at any point of time.

How does General Ledger Accounting Works?

Step1: Since General Ledger works on double entry accounting system therefore first needs to post journal entry for every transaction.

Step2: In double entry accounting below are the rules for posting the entry:

• If assets will increase then assets will be debited similarly if assets will decrease then it will be credited
• If liability will increase then it will be credited and if liability will decrease then it will be debited.
• Capital account always have credit balance
• Expenses will be debited and income will be credited.

Step3: For every transaction two account will be affected like for sales one revenue account and other one will be cash/bank account.

Step4: Similarly, all the transaction will be posted in the above manner over the period.

Step5: At the end of the year balance of all the ledger will be transferred to the trial balance and all the ledger will be closed.

Step6: After transferring of all the ledger balance into trial balance, total debit balance of trial balance will be equal to the total credit balance

Step7: If there is difference between debit balance and credit balance then there must be mistakes happened during balance transfer from ledger to trial balance or there is an error in posting journal entry in general ledger.

Step8: After preparation of trial balance, Balance sheet and profit & loss account will be prepared. 

Example:

Apple Inc has a business of laptop & computers and as on 01.04.2018 Apple Inc has sold 100 laptops @150 each for Rs. 15000, Apple Inc has received interest of Rs.50 on 31.03.2019 and Incurred expenses of rent of Rs. 1500, electricity of Rs.300.then below journal entry will be passed and posted in general ledger:

01.04.2018                        Cash A/c                             …Dr                       Rs.15000

                                                     To Sales A/c                                                           Rs.15000

                                             Bank A/c                             …Dr                       Rs.50

                                                     To Interest                                                              Rs.50

Rent A/c                             …Dr                       Rs.1500

Electricity A/c                   …Dr                       Rs.300

       To Cash A/c                                                             Rs.1800

Now the above entry will reflect in general ledger in below manner:

Cash A/c
Date	Particulars	Debit Amount (In Rs.)		Date	Particulars	Credit Amount (In Rs.)
01.04.2018	To Sales	15000			By Rent	1500
					By Electricity	300
				31.03.2019	By Balance Transferred to trial Balance	13200
	Total	15000			Total	15000
Bank A/c
Date	Particulars	Debit Amount (In Rs.)		Date	Particulars	Credit Amount (In Rs.)
01.04.2018	To Interest	50		31.03.2019	By Balance Transferred to trial Balance	50
	Total	50			Total	50
Revenue A/c
Date	Particulars	Debit Amount (In Rs.)		Date	Particulars	Credit Amount (In Rs.)
31.03.2019	To Balance Transferred to trial Balance	15050			By Cash	15000
					By Interest	50
	Total	15050			Total	15050
Expenses A/c
Date	Particulars	Debit Amount (In Rs.)		Date	Particulars	Credit Amount (In Rs.)
	To Cash	1800		31.03.2019	By Balance Transferred to trial Balance	1800
	Total	1800			Total	1800
Trial Balance
Date	Particulars	Debit Amount (In Rs.)		Date	Particulars	Credit Amount (In Rs.)
	To Cash	13200			By Revenue A/c	15050
	To Bank	50
	To Expenses A/c	1800
	Total	15050			Total	15050

Conclusion: General ledger is just like a book where certain rules are defined to record the financial transaction of an entity so that it will give the financial position of the entity at anu point of time. Now a day’s size of the business is very big and this is managed by large no. of people who are performing separate – separate responsibility therefore this type of accounting method is used for recording the transactions of the entity. General ledger also helps in preparation in trial balance, profit & loss account and balance sheet. At the same time this requires skilled manpower for maintaining these transactions therefore this is costly affair also.