Journals and Ledgers

  
 

What Kind of Bookkeeping System Should I Get?

There are many choices when it comes to business bookkeeping systems. You can use a manual system in which you write the details of the transactions in journals and manually post them into ledgers. You can also purchase one of the myriad of computer software programs that perform accounting for small businesses. It can be difficult to decide what's best for you. Let's look at the pros and cons of some of these systems.

Journals and ledgers

A journal is the place where you record transactions. A ledger is the place where you record summaries of changes.

There can be several journals; the sales journal (where all sale transactions are recorded), the purchases journal (where purchases are recorded), and the general journal (where everything else is recorded). Most small businesses have only a general journal and post all entries in there.

Each general journal entry is numbered GJ1, GJ2, and so forth. The posting reference (that is, the number stated below the account name) shows the balance sheet or income statement account to which an individual line will post. Remember that the debits must always equal the credits in any journal entry.

At some point - usually at the end of the month - the general journal entries are posted into the general ledger. The general ledger will have a page for each balance sheet and income statement account, and that page will show only the pieces of journal entries that affect that particular account. The general ledger will always give you a running balance of each of your accounts. Because everything you enter into the journals (and, ultimately, the ledgers) balances, when you add up all the ending balances of all your accounts, they will also balance. If they do not balance, you have made an input error in your recording.

Also at the end of the accounting cycle, you will need to prepare a trial balance, which is simply a listing of all accounts (assets, liabilities, equity, revenue, and expenses) at the end of the period. It is called a trial balance because it is a testing of your records to make certain they balance. This trial balance will be the basis of your basic financial statements: the balance sheet and the income statement.