5 Different Types of General Ledger Accounts

A general ledger account contains all the financial records of the company. It is also called the “principal book, which lays the foundation of the bookkeeping and accounting for the business. It is necessary for the preparation of financial statements—the income statement, balance sheet, and cash flow statement.

A general ledger also helps file the taxes. For example, if you pay taxes on behalf of an employee, you keep track of how much you paid in a given fiscal year to determine your tax liability.

Types of General Ledger Account

The general ledger is divided into sub-ledgers or different general ledger account types in which different financial transactions are recorded. The GL can be mainly categorized into five Types of General Ledger Accounts:

1. Asset:

It includes cash, accounts receivable, land and building, etc.

2. Liabilities:

It includes debt, accounts payable, loan, accrued expenses, etc.

3. Stock:

It includes stockholder’s equity, common stock, and retained earnings.

4. Operating revenues:

Proceeds from sales and service fees.

5. Operating expenses:

It include salaries, wages, office expenses, and depreciation.

Apart from these five general ledger account types, there also non-operating revenue and gains and non-operating expenses and losses accounts.

The information from the asset, liabilities, and stock flows into the balance sheet &

The information from operating and non-operating revenue and expenses flows into the income statement.

How does it work? Ledger accounts with example.

The financial transaction of the business is recorded as journal entries and then posted to the respective ledger accounts. Let’s understand the ledger posting with an example:

• For example

Mr. David Dhawan has started a forging factory. On 1st January he started the business for $100,000. He opened a current account and deposited $400,000. The following are the transactions related to his factory.

Above is an example of a ledger account. The ledger account includes the date, journal folio, particulars, and amount details of the financial transaction.

The preparation of the journal and ledger is based on the double-entry bookkeeping system. This system records every transaction when the money leaves the account (credit) and again when the money enters the account (debit). It works on the golden principles of accounting.

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FAQs

1. Why is a general ledger essential for my business?
   A ledger gives you one place to see all your deals. You can check cash, bills, and sales in real time. This helps you spot issues fast and make smart moves.
2. What are the core types of ledger accounts I should know?
   The main ones are assets, debts, stock, income, and spending. These show what you own, what you owe, how much you earn, and what you pay out.
3. How does a ledger help me with tax time?
   With all deals logged in one place, you can track pay, costs, and dues with ease. This makes tax time smooth and helps you file quickly.
4. Do small firms or shops need ledgers too?
   Yes, even if you run a small shop, ledgers help you track each sale and cost. This gives you clear books and keeps you safe from tax fines.
5. What is the link between a ledger and reports?
   Clean ledgers are the foundation of accurate reports. For cash flow, profit and loss, or balance sheets, you need clean ledgers first.
6. How do I start with double-entry?
   Think of it as two sides of each deal. If cash goes out, it is marked as spent, and if cash comes in, it is marked as gained. This keeps books fair and neat.
7. Can ledgers show me if my firm grows or slows?
   Yes, by checking your ledgers, you see trends in sales, costs, and cash flow. This shows if your firm is on track or if you must make a change.
8. Why does detail matter so much in ledgers?
   Small slips can cause big gaps in your books. With dates, sums, and notes kept neat, you can trust your data and plan with ease.