Ledgers

What is a double entry accounting system?

The double entry system of accounting or bookkeeping means that every business transaction will involve two accounts (or more). For example, when a company borrows money from its bank, the company's Cash account will increase and its liability account Loans Payable will increase.

What are the ledgers in accounting?

The ledger provides a complete record of financial transactions over the life of the company. The ledger holds account information that is needed to prepare financial statements and includes accounts for assets, liabilities, owners' equity, revenues and expenses.

What is the chart of accounts?

A chart of accounts (COA) is a financial organizational tool that provides a complete listing of every account in an accounting system. An account is a unique record for each type of asset, liability, equity, revenue and expense.

What is a ledger entry in accounting?

After journal entries are made, the next step in the accounting cycle is to post the journal entries into the ledger. Posting refers to the process of transferring entries in the journal into the accounts in the ledger. Posting to the ledger is the classifying phase of accounting.

What is the meaning of ledger entries?

In bookkeeping and accounting, a ledger is a book (or record) for collecting chronological transaction data from a journal, and organizing entries by account.

Ledger Types?

Ledgers include: Sales ledger, records accounts receivable. This ledger consists of the financial transactions made by customers to the company. Purchase ledgerrecords money spent for purchasing by the company. General ledger representing the five main account types: assets, liabilities, income, expenses, and Capital.

Type	Description
General Ledger	It accumulates information from journals. Each month all journals are totalled and posted to the General Ledger. The purpose of the General Ledger is therefore to organise and summarise the individual transactions listed in all the journals.
Debtors Ledger (Sales Ledger)	The Debtors Ledger accumulates information from the sales journal. The purpose of the Debtors Ledger is to provide knowledge about which customers owe money to the business, and how much. More information on Debtors Ledger A credit customer is also called a debtor.
Creditors Ledger (Purchase Ledger)	The Creditors Ledger accumulates information from the purchases journal. The purpose of the Creditors Ledger is to provide knowledge about which suppliers the business owes money, and how much. A credit supplier is also called a creditor.

Balance Sheet?

A balance sheet is a financial statement that summarizes a company's assets, liabilities and shareholders' equity at a specific point in time. These three balance sheet segments give investors an idea as to what the company owns and owes, as well as the amount invested by shareholders.

Types of Accounts

Personal accounts As the name says, personal accounts are accounts of persons. They, therefore, bear the names of persons. Such persons can be credit customers or credit suppliers. Therefore, personal accounts are kept in either: -       Sales ledger, or -       Purchases ledger Note that in accounting, persons refer not only to individuals but also to companies, partnerships or any form of organisation with whom there may be transactions. Impersonal accounts As seen in the above diagram, impersonal accounts are of two types: -       Real accounts -       Nominal accounts All impersonal accounts are kept in the general ledger. Real accounts Real accounts record property/ assets of the business. Examples of real accounts are: furniture account, building account, vehicles account etc Nominal accounts Nominal accounts record liabilities, expenses, revenues, capital and drawing. Examples of nominal accounts are loan account, sales account, commission received account, salaries account, rent account, capital account, drawings account etc.

The Accounting Cycle

The approach that the overwhelming majority of companies and organizations, worldwide, use.

• Firstly, business transactions of many kinds occur, which must ultimately impact the firm's accounts. Earning revenues, incurring expenses, and many other transaction activities, are the first step in the accounting cycle.
• Secondly, transactions normally enter the accounting system as journal entries—the second step in the cycle. The journal records transaction entries chronologically, that is, in the order the occur.
• Thirdly, journal entries post to the ledger. The ledger organizes transactions by account, so as to show each account's transaction history and current balance.
• Fourthly, just before the end of the reporting period, accountants use account balances and transaction histories to create a trial balance. This primary purpose of cycle step is to check ledger accounts for accuracy by trial balance.This should show that total debits equals total credits across all accounts. They perform other kinds of error-checking at this time, as well, making corrections and adjustments when necessary.
• Fifthly, the firm ends they cycle by publishing financial statements (financial reports). The Income statement, Balance sheet, and other reports, essentially consist of account balances and account histories for the period just ending.

Posting refers to the process of transferring entries in the journal into the accounts in the ledger. Posting to the ledger is the classifying phase of accounting.

Examples:

Let's start.

Take transaction #1 first.

Date 2016		Particulars	Debit	Credit
Dec	1	Cash	10,000.00
		Mr. Gray, Capital		10,000.00

Now, go to the ledger and find the accounts. Post the amounts debited and credited to the appropriate side. Debits go to the left and credits to the right. After posting the amounts, the cash and capital account would look like:

	Cash			Mr. Gray, Capital
	10,000.00				10,000.00

What is batch posting in accounting?

Posting these journals to the general ledger is done separately. Typically, a group of transactions (often a full day's worth) is entered. Later, after the journals are reviewed for accuracy, this entire day's group, or “batch”, is posted to the general ledger.

CHART OF ACCOUNTS:

A chart of accounts (COA) is a bookkeeping tool that lists all the accounts included in financial statements. It breaks down your business’s money into categories for budgeting and tax purposes.

You need to keep accurate records of all your business’s financial transactions. Record all money going into your business and all money going out. A chart of accounts is broken down into these five sections:

• Assets (short-term and long-term)
• Liabilities (short-term and long-term)
• Equity
• Revenues
• Expenses

Typical accounts found in the chart of accounts are:

Assets:

• Cash (main checking account)
• Cash (payroll account)
• Petty Cash
• Marketable Securities
• Accounts Receivable
• Allowance for Doubtful Accounts (contra account)
• Prepaid Expenses
• Inventory
• Fixed Assets
• Accumulated Depreciation (contra account)
• Other Assets

Liabilities:

• Accounts Payable
• Accrued Liabilities
• Taxes Payable
• Wages Payable
• Notes Payable

Stockholders' Equity:

• Common Stock
• Preferred Stock
• Retained Earnings

Revenue:

• Revenue
• Sales returns and allowances (contra account)

Expenses:

• Cost of Goods Sold
• Advertising Expense
• Bank Fees
• Depreciation Expense
• Payroll Tax Expense
• Rent Expense
• Supplies Expense
• Utilities Expense
• Wages Expense
• Other Expenses

How to set up a chart of accounts

Now that you can answer “what is a chart of accounts for small business?” you need to know how to create one. Assign a group of numbers to each of the five categories. Then, number each account to match the category it belongs in. For example, your assets are 100-199. Since cash is an account under the assets category, you would number it in the 100s.

Most small businesses only need numbers with three digits. Take a look at this breakdown of a chart of accounts for small business:

• Assets: 100 to 199
• Liability: 200 to 299
• Equity: 300 to 399
• Revenue: 400 to 499
• Expenses: 500 to 599

Variations of the chart of accounts

A chart of accounts does not follow a specific layout. Some small business owners use a combination of letters and numbers (e.g., A100).

Large businesses use four-digit numbers (e.g., 1000). If your business grows substantially, you will need to add numbers.

Regardless of how you number your accounts, make sure they make sense to you. The purpose of the numbers is to make recording transactions easier.