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General Ledger

At the end of a given period, we take the General Journal and utilize it to create the General Ledger!

The general ledger takes the beginning balance of each account, and then shows all the journal entries related to the account for the month, resulting in the final balance for that account for the month.

In other words... we use the General Ledger to categorize journal entries by account!

You may here the term "posting" journal entries...

To "post" a journal entry means taking it from the General Journal and placing it into the General Ledger!

So, if we were to take the journal entries in this General Journal...

MARCH

DateTransactionDebitCredit
3-1Equipment$1,000
     Cash$1,000
New lemon squeezer
3-5Cash$500
     Notes Payable$500
Borrow a loan from local bank
3-7Cash$250
     Common Stock$250
Issue common stock shares

...and post them into a General Ledger, they'd look like so!

CASH (Asset)

DateDescriptionDebitCreditBalance
3-1Beginning Balance$1,500$1,500 (Dr)
3-1New lemon squeezer$1,000$500 (Dr)
3-5Borrow a loan from local bank$500$1,000 (Dr)
3-7Issue common stock shares$250$1,250 (Dr)

EQUIPMENT (Asset)

DateDescriptionDebitCreditBalance
3-1Beginning Balance$500$500 (Dr)
3-1New lemon squeezer$1,000$1,500 (Dr)

NOTES PAYABLE (Liability)

DateDescriptionDebitCreditBalance
3-1Beginning Balance$1,000$1,000 (Cr)
3-5Borrow a loan from local bank$500$1,500 (Cr)

COMMON STOCK (Equity)

DateDescriptionDebitCreditBalance
3-1Beginning Balance$1,000$1,000 (Cr)
3-7Issue common stock shares$250$1,250 (Cr)

NOTE: The typical General Journal contains way more transactions. But you're cramming for your exam! We're going to keep things simple, so that you understand what's going on here, and then are ready to apply that onto your exam!

KEEP IN MIND: More journal entries doesn't change the process behind the General Ledger. You're still just organizing journal entries in the General Journal by account!

To create this General Ledger, all we did was enter the starting amounts for each account...

The beginning balances for each account will typically be given to you in the problem. For context: they're simply each account's ending balance from the previous period!

In the realm of this problem, let's say we were given the following beginning balances:

Assume the beginning balances for the following accounts in the month of March:

  • Cash: $1,500
  • Equipment: $300
  • Notes Payable: $1,000
  • Common Stock: $1,000

We can place these beginning balances at the top of each account's box in the General Ledger like so!

CASH (Asset)

DateDescriptionDebitCreditBalance
3-1Beginning Balance$1,500$1,500 (Dr)
3-1New lemon squeezer$1,000$500 (Dr)
3-5Borrow a loan from local bank$500$1,000 (Dr)
3-7Issue common stock shares$250$1,250 (Dr)

EQUIPMENT (Asset)

DateDescriptionDebitCreditBalance
3-1Beginning Balance$500$500 (Dr)
3-1New lemon squeezer$1,000$1,500 (Dr)

NOTES PAYABLE (Liability)

DateDescriptionDebitCreditBalance
3-1Beginning Balance$1,000$1,000 (Cr)
3-5Borrow a loan from local bank$500$1,500 (Cr)

COMMON STOCK (Equity)

DateDescriptionDebitCreditBalance
3-1Beginning Balance$1,000$1,000 (Cr)
3-7Issue common stock shares$250$1,250 (Cr)

Because asset accounts have a normal debit balance, and liabilities & equity accounts have a normal credit balance!

Assume the beginning balances for the following accounts in the month of March:

  • Cash (Asset): $1,500 (Debit balance)
  • Equipment (Asset): $300 (Debit balance)
  • Notes Payable (Liability): $1,000 (Credit balance)
  • Common Stock (Equity): $1,000 (Credit balance)

...and then add in the journal entries corresponding to them over the course of March!

Rather than try to tackle the entire general ledger at once, it's crucial to focus on one account at a time.

Let's go ahead and assemble the general ledger with the Cash account! (The process is the same for every and all other accounts.)

The process is simple: identify all journal entries in the General Journal pertaining to the Cash account...

MARCH

DateTransactionDebitCredit
3-1Equipment$1,000
     Cash$1,000
New lemon squeezer
3-5Cash$500
     Notes Payable$500
Borrow a loan from local bank
3-7Cash$250
     Common Stock$250
Issue common stock shares

...and then copy & paste the line pertaining to the Cash account into the General Ledger Cash box!

CASH (Asset)

DateDescriptionDebitCreditBalance
3-1Beginning Balance$1,500$1,500 (Dr)
3-1New lemon squeezer$1,000$500 (Dr)
3-5Borrow a loan from local bank$500$1,000 (Dr)
3-7Issue common stock shares$250$1,250 (Dr)

Don't forget to add the journal entry date & description for context!

DateDescriptionDebitCreditBalance
3-1Beginning Balance$1,500$1,500 (Dr)
3-1New lemon squeezer$1,000$500 (Dr)
3-5Borrow a loan from local bank$500$1,000 (Dr)
3-7Issue common stock shares$250$1,250 (Dr)

In addition, it's critical to have visibility into the ending balance of the account!

CASH (Asset)

DateDescriptionDebitCreditBalance
3-1Beginning Balance$1,500$1,500 (Dr)
3-1New lemon squeezer$1,000$500 (Dr)
3-5Borrow a loan from local bank$500$1,000 (Dr)
3-7Issue common stock shares$250$1,250 (Dr)