A ledger account is part of a company’s accounting system, designed to contain specific types of financial information related to business transactions.
A ledger account is part of a company’s accounting system, designed to contain specific types of financial information related to business transactions. In double-entry bookkeeping, there are specific classes of G/L accounts that make up the general ledger system. In some cases, a business may not use each class of accounts, as it may not have transactions that fall into those categories. Common types of G/L accounts include income, cost of goods sold, and expenses, as well as assets, liabilities, and equity. These accounts are found within a company’s financial statements, primarily the income statement and balance sheet.
A revenue ledger account contains information about all items sold by a business. The most common accounts here can be sales receipts, purchase discounts, and returns. The network between the first two and the last two accounts shows the net sales of the company.
A revenue ledger account contains information about all items sold by a business.
Cost of goods sold is the cost of inventory items sold to customers. All businesses that sell inventory must record a cost for these items, which falls into this general ledger account. Deducting total cost of goods sold from net sales results in the company’s gross profit for a specified time period.
The last group of G/L accounts on the income statement is the expense category. Here, accountants record all the items that a business needs to run the business. Businesses must match expenses to earned income, i.e. payroll, utilities, and other expenses are required in the account pool.
Balance sheet accounts begin with the asset category. Assets include all items that a business owns and uses for its standard business operations. They can be physical and intangible, and are typically the most valuable items a business needs to earn revenue in the business environment.
A liability ledger account includes data indicating that a business owes money to a supplier or vendor for goods. Another way to look at liabilities is claims made by outside groups against a company’s assets. Companies must pay liabilities to avoid problems with outside groups and lawsuits for non-payment of goods or services.
Capital accounts represent the rights of the owner or shareholders against the assets of the company. This account is basically the difference between the assets and liabilities listed on the balance sheet. Net profit and loss also enter this number, increasing or decreasing it according to the company’s income statement information.
All of the above G/L account groups are represented in the company ledger. Various accounts contain detailed information based on the general transaction type. Accountants balance and track the information in each account for accuracy and relevance to business operations.