What is the Point of Bookkeeping Ledgers?
You may well ask why the information is first entered into the bookkeeping journals
and then again in the bookkeeping ledgers. Isn’t this just doubling up on the
amount of work? Well, there is a good reason for doing this...
...whilst the journal is a diary of business transactions carried
out in date order, and whilst the journal shows which General Ledger
account to debit and which one to credit, it does not provide the means
for adding up the totals of each account. In other words, it does not keep a running tally for each account.
This can only be done in the
Of course, you might then say why not just record the information
straight to the ledger accounts and miss out the journal altogether?
The reason for this is that each ledger account only shows one side of
the business transaction, be it a debit or a credit. You cannot see from
one account page which other account is involved in the
transaction (unless you follow the reference back to the journal).
For example, for every entry in the bank sample ledger above there will be an opposite entry on another account page (following the rule of double entry bookkeeping).
So, let's say that the $25 debit on April 1st was a payment for a telephone bill. You will find the opposite entry on the telephone account ledger page. (debit telephone account; credit bank account)
The totals from the General Ledger are used to produce reports such as
the trial balance, profit and loss (also called an income statement) and