Get "AccountingCoach Pro" only with $49 (one-time payment) to master this knowledge point. Start our free accounting course Now!
We know, the route by which transactions are recorded is: Transactions –> Journals –> Ledger accounts –> Financial statements.
But what’s the difference of journals and ledger accounts?
Journals record the transactions of each day.
A ledger account (or called ‘T’ account) is where all transactions of a similar type are recorded. Ledger accounts are pages in a book with a separate page reserved for transactions of the same type. Each aspect is recorded in the relevant ledger account. In fact, there’re a large number of ledger accounts, but each has their meaning and each transaction will be relevant to the corresponding ledger account.
So, journals record the transactions, and ledger accounts take these Journals into the ‘T’ account.
Each ‘T’ account has two sides: the debit side and the credit side. This means we must master the double entry.
When you record all the transactions based on double entry in an accounting period, you’ll receive the trial balance, it’s the basic of preparing financial statements. As known, the difficulty is how to prepare the correct journals, and how to take the transactions into the correct ledger accounts. Because there’re a large number of ledger accounts, and each insteads the result of the business behavior.
When you are ready to prepare financial statements (including balance sheet, income statement and cash flow), you should know clearly and master how to do it right.
Related posts:
