I'm Larry Walther and
this is www.principlesofaccounting.com Chapter two.
In this module we will be looking at the general ledger.
The general ledger is a record
of the accounts comprising the financial statements and their balances.
There's a separate page in the ledger maintained for each account.
And when I say page in the ledger, a separate page,
I'm speaking in an iconic fashion of a manual system.
Clearly this could be occurring electronically as well.
And even in an electronic system you might periodically print out a general ledger so
that you can see each account.
Let's look again at what an account would look like in the general ledger.
Here I'm showing you cash account for
this particular business they started the year with no cash.
I believe in this example it was actually a new business.
The first transaction caused an increase of $25,000 to cash or
a debit giving rise to a $25,000 balance on that date.
And so it went for the subsequent transactions.
Now, that's the general ledger account, but
they make this make sense we need to think back again to a general journal.
>From the left hand side of the next slide we see a general journal.
Remember the definition of the journal the chronological listing of the transactions
of the business and their debit credit form.
So, here I'm showing a page from the journal.
And the very first transaction reflects that we issued stock to shareholders
in exchange for cash.
Cash went up and was debited 25,000.
Stockholders equity went up 25,000 and was credited.
Thus, there was a balanced entry, debit cash and credit capital stock.
That information next needs to be sorted or transferred or posted,
is the term we use, posted to the ledger account.
This might be done monthly or weekly,
or in a computerized system, on a real-time basis.
Again, we need to speak in an iconic fashion to represent what's happening
to move the data forward.
And so we would take each transaction in the journal, sort it out and
post it to the appropriate ledger account.
Here we see on journal page one a $25,000 debit to cash.
We find a subsequent credit of $2,000 to cash that occurred on January the 4th,
a $4,000 debit that occurred on January the 8th.
And so it would go as information from the journal was posted to the ledger.
It's a good idea to put checkmarks in a journal to show when
the amounts have been posted to avoid posting the same transaction twice, or
indeed, to forget to post a transaction at all.
So we have journals, the book of original entry,
and then we have a subsequent set of records that are posted periodically,
a general ledger, they are fundamentally different.
It's probably helpful to review the entire process.
As transactions occur, each transaction is analyzed to determine the accounts
affected and indeed how they are affected, debit or credit.
Then based on that information we journalize those transactions.
A journal entry is entered in to the general journal for each transaction.
And then periodically, the journals are posted to the ledger.
This drawing might be helpful.
We examine our source documents such as an invoice to determine the accounts affected
and their effects.
We translate that into debit, credit nomenclature and
place that into the general journal.
Periodically then we post the journal information to the ledger.
The ledger accounts then give us the basis for moving forward
in the accounting process toward the preparation of financial statements.
Now what I would like to do in closing this module
is ask you to think in this fashion.
Imagine you have two notebooks.
One notebook has pages in it and as you flip each page you're seeing
the chronological listing of transactions and events for the business.
The general journal.
They're in debit credit form, perhaps a little brief narrative description.
But the amounts in the accounts affected and how they are affected debit credit or
clearly displayed as you flip through that.
That by itself will tell you nothing about the business.
You cannot thumb through that first notebook and know how much cash I have.
How much accounts receivable I have.
How much inventory I have.
And so on.
It's too jumbled.
Okay, it's too complex to capture in your mind.
You have to organize it, or reorganize it, or summarize it.
And so you pull out your second notebook.
And in that notebook, as you flip the pages,
rather than being chronological, you'll find it's organized by account.
A page for cash, a page for accounts receivable, a page for inventory, and
so forth.
Now how do I get information into that useful book, the general ledger?
I post it or sort it from the general journal.
I look at notebook one, then I look at notebook two,
and I simply make my marks in notebook two based on what I'm seeing in notebook one.
It's a transferring of that data.
Now, once I've done that,
I've posted the general ledger, that general ledger gives me a springboard to
move forward into knowing how much cash I have, how much accounts receivable I have?
Indeed, what is my entire financial position?
Have I made money or lost money?
That general ledger becomes very important.
So, you have your book of orignal entry and
then the subsequent posting to the general ledger.