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The general ledger is a collection of the firm's accounts. While the general journal is organized as a chronological record of transactions, the ledger is organized by account. In casual use the accounts of the general ledger often take the form of simple two-column Taccounts. In the formal records of the company they may contain a third or fourth column to display the account balance after each posting.
To illustrate the posting of transactions in the general ledger, consider the following transactions taken from the example on general journal entries:
Date Account Names
9/1 Cash
Capital
9/8 Bike parts
Accounts payable
9/15 Expenses
Cash
Debit Credit
7500
7500
2500
1000
2500
1000
400
700
9/17 Cash
Accounts Receivable
Revenue
9/18 Expenses
Bike parts
9/25 Cash
Accounts receivable
9/28 Accounts payable
Cash
275
425
500
1100
275
425
500
The above journal entries affect a total of seven different accounts and would be posted to the T-accounts of the general ledger as follows:
General Ledger
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(T-Accounts)
Cash
Sep 1 7500 Sep 15 1000
17 400 28 500
25 425
Accounts Receivable
Sep 17 700 Sep 25 425
Bike Parts
Sep 8 2500 Sep 18 275
Accounts Payable
Sep 28 500 Sep 8 2500
Capital
Sep 1 7500
Revenue
Sep 17 1100
Expenses
Sep 15 1000
Sep 18 275
Note the direct mapping between the journal entries and the ledger postings. While this posting of journalized transactions in the general ledger at first may appear to be redundant since the transactions already are recorded in the general journal, the general ledger serves an important function: it allows one to view the activity and balance of each account at a glance. Because the posting to the ledger is simply a rearrangement of information requiring no additional decisions, it easily is performed by accounting software, either when the journal entry is made or as a batch process, for example, at the end of the day or week.
Finally, while such T-accounts are handy for informal use, in practice a three-column or four-column account may be used to show the running account balance, and in the case of a four column account, whether that balance is a net debit or credit. Additionally, reference numbers may be used so that each posting can be traced back to its original journal entry.
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