General Ledger Overview

Overview

This lecture introduces the general ledger, explains its place in the accounting cycle, and demonstrates how manual and automatic journal entries are posted to the general ledger with examples.

The General Ledger in Accounting

• The general ledger is a database that stores a complete record of all accounts and journal entries.
• It fits in step three of the accounting cycle, following transaction identification and journal entry preparation.
• Subledgers (like cash book or accounts payable) provide extra detail for certain accounts and support the general ledger.

Manual Journal Entries Example

• Manual entries are posted directly to the general ledger without using a subledger.
• Example: To record $400 electricity expense not yet billed (accrued expense), debit Overhead Expenses $400 and credit Accrued Expenses $400 as of June 30.
• T accounts show beginning balances and update with each transaction.

Subledgers and Automatic Journal Entries

• Control accounts in the general ledger (e.g., Accounts Payable) are supported by corresponding subledgers that provide detailed breakdowns.
• Example: Paying a $1,000 supplier invoice clears it from the accounts payable subledger and reduces the total owed.
• An automatic journal entry debits Accounts Payable $1,000 and credits Cash $1,000, updating both the control account and cash account in the general ledger.
• General ledger and subledger totals must always match.

Key Terms & Definitions

• General Ledger — Database of all accounts and journal entries for a business.
• Journal Entry — Record of a financial transaction with debits and credits.
• Subledger — Detailed record supporting a specific account in the general ledger.
• Control Account — General ledger account summarized by a subledger (e.g., Accounts Payable).
• Manual Journal Entry — Transaction recorded directly by hand or user input.
• Automatic Journal Entry — Transaction generated automatically by accounting software.
• Accrued Expense — Expense recorded when incurred but not yet paid or billed.
• T Account — Visual tool showing debits (left) and credits (right) for an account.

Action Items / Next Steps

• Review the cheat sheet linked in the description for a summary of the general ledger.
• If new to accrued expenses, watch the recommended video on that topic.
• Practice posting manual and automatic journal entries using sample transactions.