Bookkeeping basics
The general ledger and T-accounts
An account for every asset, liability, income and expense.
Draft: not yet reviewed by a teacher
Why it exists
Journal entries show transactions one by one, but users need totals: how much is in the bank, how much customers owe. An account collects every entry for one item and gives its balance.
Key rules
- The general ledger holds the asset, liability, capital, income and expense accounts.
- A T-account has debits on the left and credits on the right; each entry shows the date, the other account and the amount.
- Balancing off: put the difference between the sides on the smaller side as Balance c/d, make the totals equal, then bring Balance b/d down on the other side.
- Assets, liabilities and capital carry forward to the next period (c/d → b/d).
- Income and expense accounts do not carry forward: at the year end their balances are closed to the statement of profit or loss.
- Control accounts (receivables, payables) in the general ledger hold the totals; each customer's and supplier's account is kept in a memorandum ledger.
Examples
A Xırdalan building-supplies shop's payables for March:
- Cr: Balance b/d 3,200, Purchases 7,800 = 11,000
- Dr: Bank 6,900, Purchases returns 400 = 7,300
- Balance c/d 3,700 on the debit (smaller) side, totals 11,000 and 11,000
- 1 April: Balance b/d 3,700 credit: the shop owes its suppliers
The rent account at 31 December has a debit balance of 8,400.
- Dr Statement of profit or loss 8,400
- Cr Rent 8,400
The account is cleared and starts the new year at nil.
How it works
After balancing off, the balance should be on the account's normal side: bank and receivables on the debit, suppliers and loans on the credit. A balance on the wrong side is either a special case (an overdraft) or an error.
The balances of all accounts make up the trial balance.