Journals And Ledgers
Journal is a place where transactions are recorded. Ledger is a place where summaries of changes are recorded. There can be several journals such as:
- the sales journal (where all sale transactions are recorded)
- the purchases journal (where purchases are recorded)
- the general journal (where everything else is recorded)
Most small businesses have only a general journal and post all entries in there, so that is what is used in the following examples. Each general journal entry is numbered in sequence order. It will consist of account name, balance sheet or income statement account to which an individual line will post. Do take note that debits must always equal the credits in any journal entry.
At some point, which is usually the end of the month, the general journal entries are posted into the general ledger. The general ledger will have a page for each balance sheet and income statement account which the page will show only the pieces of journal entries that affect that particular account. The general ledger will always give you a running balance of each of your accounts. Because everything you enter into the journals ( and ultimately, the ledgers) balances, when you add up all the ending balances of all your accounts, they will also balance. If not, you have made an input error in your recording.
At the end of the accounting cycle, you will need to prepare a trial balance, which is simply a listing of all accounts (assets, liabilities, equity, revenue, and expenses) at the end of the period. It is called atrial balance because it is a testing of your records to make certain they balance. This trial balance will be the basis of your basic financial statements: the balance sheet and the income statement.