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What Are the Different Types of Simple Ledgers?

Helen Akers
Helen Akers

Simple ledgers are used in businesses to keep track of and document inflows and outflows of cash. General ledgers separate asset and liability account balances into debits and credits. Sub-ledgers detail the transactions that directly affect an account balance, such as accounts receivable. Ledgers are sometimes referred to as t-accounts, since all transactions that affect debit balances must balance out or equal the transactions that affect credit balances.

Bookkeepers and accountants document a company's expenses and the payments it receives through a series of journal entries. For example, if a company purchases inventory on credit, a debit entry will be made in the amount of the inventory purchase. A corresponding credit entry will be made for the same amount that indicates a balance is owed on an invoice or a line of credit. These amounts are eventually used to calculate an account's ending balance, which can then be transferred to one of the types of simple ledgers.

Ledgers track the flow of cash in and out of a company.
Ledgers track the flow of cash in and out of a company.

The term t-account is used to describe the process of sorting debit and credit transactions. The name is derived from how the transactions are represented: a line resembling the letter "t" is drawn on paper, with debit amounts recorded on the right and credit amounts recorded on the left. Each transaction contains both a debit and a credit to a sub-ledger. For example, a payment made on an invoice would result in a debit, or decrease, to the cash account and a credit, or increase, to the accounts payable account.

General ledgers keep track of debits and credits.
General ledgers keep track of debits and credits.

For groups of transactions that are related to each other, a sub-ledger is created. Sub-ledgers are a way to help simplify a company's financial statements. They reflect whether an account's balance increased or decreased during an accounting period, which can typically span three months, six months, or a year. For example, in the case of accounts receivable, the balance amount can reflect whether a company is having issues collecting money owed on inventory that has already been sold.

The ending balances of sub-ledgers get transferred to general ledgers. These types of simple ledgers are a summary of the origins of a company's entire debit and credit balances. The general ledger does not give specifics on the account balances. For example, the "sales" account will be listed as a single balance and is the total of all the sales the company generated for that accounting period.

General ledgers are also known as a "final entry." The simple ledgers contain the values that will be used to create a company's balance sheet, income statement and statement of cash flows. Careful record keeping in simple ledgers can be especially helpful when it comes time to construct a balance sheet, as a company's assets must equal its liabilities plus its stockholders' equity.

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    • Ledgers track the flow of cash in and out of a company.
      By: Monkey Business
      Ledgers track the flow of cash in and out of a company.
    • General ledgers keep track of debits and credits.
      By: robert cabrera
      General ledgers keep track of debits and credits.