Question:

Can anyone explain the basics of a general ledger?

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Hello.. I want to get educated as much as I can now that finances are soooooo important.

If any body can give me the basic summary and a good place to take online classes that would help greatly.

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  1. It's too much to type into here, but these links are good for beginners.


  2. General Ledger accounts and entries are based on ALOE, Assets minus Liabilities equals Owners Equity.  Assets always have a debit balance, Liabilities and Owner's Equity always have credit balances.  (When your bank says they've credited your account by adding money to it, it's because you're a liability on their books since it's your money and they owe it to you)

    A general ledger uses a double entry system.  For each journal entry made, a debit and a credit are posted, and the total of the debits equals the total of the credits.  These debits and credits are posted to the general ledger accounts, and the total of all transactions in each account is that account's balance.  The total of all the debit account balances is always equal to the total of all the credit account balances.

    For example, you have an asset account called Cash and another asset account called Building.  You have a liability account called Bank Loan.  Since you don't own a building and don't owe the bank any money, those account balances are both zero.  Your cash account has $25,000.

    Today, we decide to buy a building for 10,000 down and finance 50,000 through the bank, because the seller wants 60,000 for the building.  The journal entry is:

    Debit - Building                          $10,000

    Credit - Cash                                                 $10,000

    Memo - To record the down payment on building

    Debit - Building                          $50,000

    Credit - Bank Loan                                        $50,000

    Memo - To record bank loan on building

    Now the Cash account has a balance of $15,000 because it had a debit balance of 25 and we posted a credit of 10, so 25-10=15.  The Building account was zero, now we've increased it with two debits of 10 and 50, so it's now $60,000 which is the amount the seller wanted for the building.  The Bank Loan account was zero, now we've increased it with a credit of $50,000 which is our new balance.

    We also could have posted the transaction in one entry:

    Debit - Building                       $60,000

    Credit - Cash                                               $10,000

    Credit - Bank Loan                                      $50,000

    Memo - To record the purchase of building

    If you want a freebie online class, check the link below.  Hope this helps.

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