If you are a small business owner or someone that may be looking into the world of bookkeeping you may have heard of the term ledger and chances are your wondering, what is a bookkeeping ledger?
My hope is that after reading this article you will have at the very least, know what a ledger is as well as all the elements that tend to go along with it. It really isn’t too difficult to understand when it is broken down for you. Maybe you are a business owner who may be doing his own books or looking to better understand what their bookkeeper is telling them.
You may even be considering getting into bookkeeping yourself. If that is the case stick around, I may be able to help you with just that. So let’s get into what ledger is and try to gain a basic understanding on what it is and how it works.
The images below are from using Xero
To get things started, a Ledger is a record for collecting data and organized by account type. They provide history along with current balances in each account. Ledgers serve as the main source for business financial reports which include income statements and balance sheets.
Think of a ledger as the writing in a book. They are simply used to classify and summarize all financial transactions which are then used to cross over to financial statements. I will get more into this in a minute but our ledger is then checked for accuracy with a Trial Balance.
Chart Of Accounts
Within your ledger you are also going to have a Chart Of Accounts. This is pretty much exactly what it says it is. This is the listing of all accounts used by the business to record and classify financial transactions, if your actual ledger is the writing in a book, then your chart of accounts is the table of contents.
It is used to make your work more organized. Every account that the business has is going to be listed and given a title (ex. cash or revenue) and it is going to be given a number, or code, as well. The example picture here shows a three digit code but it may be a good idea to make it a four digit code to not limit yourself if the business expands down the road.
- Assets- 1000 series
- Liabilities- 2000 series
- Equity- 3000 series
- Revenue- 4000 series
- Costs- 5000 series
- Expenses- 6000-7000 series
When broken down you will be able to see how money is flowing in and out within every account as well the code associated with it. This is also where the debits and credits come into play. Remember, whatever money is taken away in debits must and be added to credits. If you have any knowledge of bookkeeping, then you are probably aware of The Accounting Equation already and know how this comes into play.
Finally you have your Trial Balance.
If your ledger is the writing in a book and the chart of accounts is like the table of contents in a book the trail balance can be looked at as the summary of a book. This is the overview of the business itself. Your trial balance is going to be a two column summary of all the debits and credits in the chart of accounts.
This is also going to be how all of your math is going to be double-checked. All accounts will have their own series number attached to it and is all in numerical order to make it easier to read. All debits are listed in the left and credits on the right (double entry accounting). If there are errors, this should also make it much easier to figure our where they were made as well.
Your trial balance is what you are going to provide to your clients on a monthly basis to show them how their business is performing.
Are You Still With Me?
If all of this is making your head swim there is no need to worry. This is 2017! There is software that does all if this for you! At the same time, it is important to understand what a ledger is as well as a chart of accounts and trial balance and how they work.
What you need to learn is how to classify the accounts and how to plug in the numbers and whatever software you use will do the rest as well as double check all of your numbers. Once you are able to fully understand this bookkeeping skill everything else will fall into place and as a small business owner, you will see your business in a whole new light!
I know I threw a lot of information at you and much of it may be brand new to you but once you work with them a little things will begin to come much clearer for you.
How Can You Learn How To Do This?
If you are a small business owner looking to learn these skills for your own business then you need to click on the bookkeeping programs tab at the top of the page to see how you can learn this yourself.
If you are looking to possibly starting your own bookkeeping business then I have a program for you! The first thing I want you to do is to check out my review of the best bookkeeping course available online. Here you are going to learn everything you will need to know about bookkeeping, as well as, marketing your new business.
Don’t worry about handing over your credit card number or anything like that. Simply read the review, and if it sounds like something you might be interested in then you have the opportunity to receive three FREE classes that serve a couple of purposes.
The first is to evaluate yourself to see if you have the makeup to not only be a bookkeeper but also to run your very own business. You will also learn everything that you will need to get your business up and running so that there are no surprises from a financial point of view.
Check out the review to learn more and if you have any questions, comments or concerns feel free to drop them below and I will be sure to get back to you!