Ledger account and trial balance of any business concern with help of a journal
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business may engage in thousands of transactions during a year. Can you imagine preparing a transaction analysis, like we did in the previous unit, for all of those transactions? It would take a lot of time and the spreadsheet would be large! There has to be a better way to classify and summarize the data in these transactions to create useful information. We will learn the first part of the accounting cycle:Let’s review what we have learned. An account is a part of the accounting system used to classify and summarize the increases, decreases, and balances of each asset, liability, stockholders’ equity item, dividend, revenue, and expense. Firms set up accounts for each different business element, such as cash, accounts receivable, and accounts payable. Every business has a Cash account in its accounting system because knowledge of the amount of cash on hand is useful information.
Accountants may differ on the account title (or name) they give the same item. For example, one accountant might name an account Notes Payable and another might call it Loans Payable. Both account titles refer to the amounts borrowed by the company. The account title should be logical to help the accountant group similar transactions into the same account. Once you give an account a title, you must use that same title throughout the accounting records.
The following video introduces the journal, ledger, and trial balance, which we will discuss next.