Ledger Account and Its Different Parts

Ledger Account and its different parts

A Ledger Account is related to a single accounting head. It contains all the information relating to an element. A Ledger is a book that contains all the Ledger accounts within an organisational accounting system. It is only a collection of ledger accounts. The general ledger is an accounting tool companies use to record and report their financial transactions. These transactions result from a company's activity in the business environment. Business owners record this information into separate financial accounts, depending on the transaction type. Individual financial accounts are maintained in the general ledger so business owners have one place of reference for financial information. Small businesses usually have fewer accounts than larger business organizations, but they are usually similar in type.

Assets

Asset accounts represent items that the company owns and finds valuable. Current and noncurrent asset accounts are two subgroups found in the general ledger. Current asset accounts contain items that will be used in less than 12 months. Cash, short-term marketable securities, inventory and accounts receivables (amounts owed by customers from sales on account) are the most common current asset accounts. Property, a plant and equipment represent noncurrent asset accounts. Facilities, vehicles and production equipment are the most common types of information found in noncurrent asset accounts.

Liabilities

Liabilities accounts are similar to asset accounts because they have current and noncurrent subgroups. Accounts payable and short-term debt due in less than 12 months represent current liabilities. Long-term external financing from lenders or investors are the most common type of noncurrent liabilities. For example, loans, bonds payable, credit lines and mortgages represent noncurrent liabilities.

Owner's Equity

Small businesses usually have an owner's equity account. This represents any money invested by the business owner into the company. Owner's equity will also contain information relating to net income reinvested into the business. Business owners usually close out monthly net income to the owner's equity account. Owner's equity plus net income represents the amount of money an owner can withdraw as a salary or ownership payment.

Sales Account

A sales account has information relating to revenue sales, returns and allowances from business operations. Small businesses usually have fewer sales revenue accounts than larger organizations. Larger organizations often create individual sales revenue accounts for different product lines, to have a historical record of sales. Accounting rules do not generally dictate how many sales revenue accounts the company must have in its general ledger.

Cost of Goods Sold

Cost of goods sold accounts contain cost information for items sold by the company. Companies with copious amounts of inventory sales usually have several cost of goods sold accounts. This information usually corresponds to an individual sales revenue account. As with sales accounts, business organizations can have multiple cost of goods accounts in their general ledger relating to the different types of inventory.

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