Ledgers are what define any businesses financial scene. They provide the business owners and shareholders with a documented account of all the transactions that have been taking part in the business. They also help the key players in the firm understand how positively or negatively the transactions are affecting the business. At the end of the day, the gathered and analyzed financial data is used in various decision making process of the firm. However, getting to understand how to use the ledgers appropriately takes thorough taking in of some basic concepts of the ledger.
The very first concept to be understood is the actual definition of a ledger. What is ledger? How does it benefit your business, company or firm? These are some of the questions that you should be able to answer in order to understand fully just how to use the ledgers. Basically, a ledger is a documented record that is used to maintain all accounts of the firm in its entire accounting system. It is through the ledger that the accounts are neatly maintained and updated. In other words, a general ledger is the only way of keeping tab on the trends happening on various company accounts in accordance to the transactions of the firm with regards to whether it is increasing or decreasing. The final sum found in the ledgers is the ones used in various financial documents of the firm. Once you have fully understood all these, you will be in a better position to get more insight on how to use ledgers.
The chart of accounts is another vital concept in this case. The very step taken in building a general ledger is setting up the chart of accounts. In this case, you will be required to make a list of all your accounts on the chart of accounts (simply referred to as the COA). Balance sheet entries are normally listed under liabilities, assets or maybe equity. The income state meant on the other hand starts with operating revenue, then goes to operating expenses, then the non-operating gains and revenue and finally the operating loses. Normally, the COA is arranged in a numerical manner. Number 1 goes to Equity accounts and liabilities. Number 2 goes to Revenues. Number 3 goes to the cost of goods sold. Finally number 5 goes to the expenses incurred.
Lastly, the terminologies used in accounting are also important. Terms such as t-accounts are very essential in accounts. By understanding what they refer to, one will be in a much better position to understand the whole concept of ledgers and their functioning.