What is a Ledger Account?
The ledger account is the basic unit of an accounting system.
These accounts collect information together for similar transactions.
Ideally there is a ledger account for each financial transaction type, for example wages, purchases and transport costs.
The example below shows a columnar ledger account. Accounting software packages such as MYOB or Xero report transaction balances using this columnar account style.
Students often learn accounting using a T account style.
As the example shows, the running balance of the columnar account determines the ledger account balance at any point in time. The balance of the ledger accounts can go up or down with the debit ad credit journal entries.
In this example, the transactions affecting the cash at bank account go up or down depending on business receipts and payments.
The above infographic explains the five types of ledger accounts.
These account types are assets, liabilities, owners equity, revenues and expenses. This type of ledger account determines whether the ledger account is of debit or credit nature. The debit or credit nature of accounts is determined by the accounting equation.
The account balances go into the financial reports.
Assets, liabilities and owners equity balances go into the Balance Sheet, as these report the financial position.
Revenues and expenses report the financial performance, so these balances are used in the Income Statement or Profit and Loss Statement.
To learn more take this Introductory Accounting Tutorial Course Journals Ledgers and the Trial Balance Tutorial Course
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