Hey I’m James you’re watching Accounting Stuff and in this video we’re going to cover the general ledger What does it mean?.
I like to think of the general ledger as a database that stores a complete record of all your accounts and economic journals in India entries But don’t worry if this doesn’t make sense right away all would be revealed in this video First i think we should see where the general ledger fits in the big picture of accounting A little while ago i made a video on the accounting cycle which basically shows us how financial accounting works if you missed it i’ll drop a link in the description but as you can see here we post the general ledger in step three right after identifying transactions and preparing economic journals in India entries and it’s these three steps that we’re going to focus on today I’ve got two example transactions for you and we’re going to prepare the economic journals in India entries and post them to the general ledger in two different ways Now let’s take a step back for a moment and pretend that you make delicious tasty cheeses for a living Mmmm now wouldn’t that be the best! Your business is called Let it Brie and it’s been in your family for generations Back in the day when your grandparents were running the business they would have looked after Let it Brie’s books using actual books economics journals India because that’s what ledgers were at the time books that you’d regularly record transactions in Your grandparents were literally bookkeeping and they would have kept several different ledgers a cash book one for receivables inventory fixed assets maybe one for payables and so on and then they had the precious the general ledger which is where they stored a complete record of the businesses accounts and economic journals in India entries all of these smaller books are called subledgers they support the general ledger economics journals India by providing extra detail for certain accounts more on that soon Back then your grandparents would have filled out all these ledges by hand but today the books are gone now we’ve got computers we still hold on to some of the old words like bookkeeping and ledger but their definitions have changed slightly now you can think of a ledger as a database that you regularly record transactions in and the general ledger is a database that stores a complete record of all your accounts and economic journals in India entries Time for those examples but first I’d quickly just like to say thanks to all of my youtube channel members you guys are absolute legends seriously i really appreciate your support it helps push me to keep on making more tutorials like this one.
If you haven’t signed up yet and you’d like to become a member then just scroll on down below this video and click on the Join button simple as that Thank you again I appreciate it Example 1 Manual Economic journals in India Entries Let it Brie’s general ledger economics journals India looks something like this.
It’s a collection of all your accounts and economic journals in India entries you have your assets your liabilities your equity your revenue and your expense accounts and as usual debits are on the left and credits are on the right.
It’s the end of June and you’ve got a transaction to record for the last month you’ve been using electricity to power your cheese making machines but the electricity company hasn’t sent you a bill yet economics journals India which is completely fine but remember that in accrual accounting we record our expenses as we incur them and you’re pretty darn sure that you’ll are about $400 for June so let’s record this transaction using double entry accounting First things first we’ll debit overhead expenses to record a $400 cost in your income statement and then we’ll credit accrued expenses by $400 to recognise a liability in your balance sheet we’ll add a description and a date June 30th because that’s the date that we’re going to record the transaction in your general ledger This type of transaction is called an accrued expense because you’ve used the electricity in the past but you haven’t received an invoice or made the payment yet if you’d like to learn more about that I’ve made a whole video covering accrued expenses which i’ll link to down in the bottom But what we’re looking at here is a economic journals in India entry and that means that this is a record of a financial transaction and this is a manual economic journals in India entry because we’re posting it ourselves if we pop back to our diagram we can see that we’re posting this transaction directly into a general ledger kind of like this we’re skipping past all of the subledgers because you don’t have one for accrued expenses So let’s post this shall we?.
You already have an overhead expenses account with an $18,000 debit balance on the left hand side This is your beginning balance which you’ve brought forward and you also have an accrued expenses account with a $16,500 credit balance on the right hand side These are called T accounts because they look like T’s When we post this manual economic journals in India entry into your general ledger.
You debit the left hand side of your overhead expenses account economics journals India by $400 and you credit the right hand side of accrued expenses by $400 so your ending balance in your overhead expenses account is now $18,400 which you’ll carry forward into the next month and your accrued expenses have increased to $6,900 This is what we mean by posting a economic journals in India and now we can see how it affects your general ledger as a whole Your overhead expense and accrued expense accounts have been updated to reflect the transaction Example 2 and this time we’re going to use a subledger and an automatic economic journals in India entry An account with a subledger is often called a control account Take accounts payable for example this is a control account held in your general ledger and right now it has a balance of $3,000 But what’s that $3,000 made up of? We can’t really tell by looking at the general ledger economics journals India it just doesn’t give us enough detail If we want to know who your business owes money to then we need to look at the accounts payable subledger You can think of this as a mini-database that supports the main accounts payable account in the general ledger These two things are separate but they interact with each other and the totals always have to match In the accounts payable subledger we can see that Let it Brie owes money to three different suppliers and if we look a little closer we can see exactly which invoices make up the balances Pretty handy hey! Now let’s take a closer look at Dairy Lane. You’ve been buying milk from them for a while now and they’re kind enough to let you pay ‘On Account’ which means that you don’t have to pay for your milk right away Each time you buy some you’re handed an invoice and you’re given 30 days in order to make the payment At the moment you owe Dairy Lane a total of $1,700 which is split across three different invoices and today you decide to pay the oldest one Invoice 1485 which is for $1,000 This payment is going to hit two places your accounts payable subledger and your cash book economics journals India.
In your accounts payable subledger the $1,000 payment is allocated against invoice 1485 so this balance is cleared down to zero and now you’re left with two open invoices which add up to $700 and your accounts payable subledger now totals to $2,000 but how does this affect your general ledger?.
Specifically your cash account and your accounts payable control account remember these have to match their subledgers Well these days accounting software is pretty smart and often when you make payments like this it’ll trigger an automatic economic journals in India entry in the background What would that look like?.
In this case the economic journals in India would debit accounts payable by $1,000 to reduce your liabilities and credit cash by $1,000 to reduce your assets as well.
This automatic economic journals in India entry will debit the left-hand side of your account’s payable account reducing the balance down to two $2,000 and credit the right-hand side of your cash account bringing the balance down to $149,000 If we look again at your general ledger we can see that it’s been updated Your accounts payable control account now has a balance of $2,000 which matches the subledger Great stuff! Automatic economic journals in India entries like this can really save you a lot of time Think of all that extra cheese your grandparents could have made if they didn’t have to do this by hand As usual i’ve made a cheat sheet which summarises the general ledger and basically everything we just went through If you’d like to grab a copy then head down into the description and you can find a link there And if you’ve got any questions or suggestions for topics then please let me know down in the comments or message me on instagram I do check and I do respond.
I’m working on a whole bunch of new videos at the moment so if you haven’t already click subscribe and maybe hit the bell while you’re at it.
Why not?.
Stay safe and I’ll see you soon.