Summary
Highlights
The general ledger is a detailed collection of all T-accounts, divided into two main sections: one for the statement of financial position (assets, equity, liabilities) and another for the statement of income (incomes, expenses). The statement of financial position was previously called a balance sheet, and the statement of income was known as the nominal account section.
General ledger accounts are similar to T-accounts, with a left side for debit entries and a right side for credit entries. Each account has its own space, and the account name at the top is crucial for classification. The accounts include columns for date (year, month, day), folio (source of information to aid audit trail, e.g., CRJ or CPJ), details (name of the contra or other account involved in the transaction), and amount (on either the debit or credit side).
When opening accounts, you first classify each as an asset, equity, or liability. For asset accounts, debit entries increase (plus) and credit entries decrease (minus) the account balance. For equity and liability accounts, debits decrease (minus) and credits increase (plus) the balance. Equity accounts can be more complex, as incomes and capital increase equity, while drawings and expenses decrease it. It's helpful to pencil in plus/minus signs to guide entries, especially for income and expense accounts within the equity classification.
The video presents an example (9.1) to demonstrate how to classify accounts and enter opening balances. Capital is an equity account (+ on credit side), land and buildings and bank are asset accounts (+ on debit side). Income accounts (current income, rent income) are part of equity and increase equity, so their balances are credited. Expense accounts (material costs, stationery) decrease equity, so their balances are debited. The entries include the date, 'balance brought down' in the details column, and the amount on the appropriate debit or credit side.