Theme: The ledger a ledger contains

An Income Statement Transaction Example

The income statement follows its own formula, which works as follows. When a company receives payment from a client for the sale of a product, the cash received is tabulated in net sales along with the receipts from other sales and returns. The cost of sales is subtracted from that sum to yield the gross profit for that reporting period.
The income statement will also account for other expenses, such as selling, general and administrative expenses, depreciation, interest, and income taxes. The difference between these inflows and outflows is the company's net income for the reporting period.

What Is the Purpose of a General Ledger?

In accounting, a general ledger is used to record a company’s ongoing transactions. Within a general ledger, transactional data is organized into assets, liabilities, revenues, expenses, and owner’s equity. After each sub-ledger has been closed out, the accountant prepares the trial balance. This data from the trial balance is then used to create the company’s financial statements, such as its balance sheet, income statement, statement of cash flows, and other financial reports. 

Is a General Ledger Part of the Double-Entry Bookkeeping Method?

Yes, a company that uses a double-entry bookkeeping method uses the general ledger method of storing company financial data. Specifically, double-entry bookkeeping is when each transaction impacts at least one debit and one credit transaction. In other words, each transaction appears in two columns, a debit column and a credit column, whose totals must balance. Under this balancing rule, the following equation applies:4

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  Assets - Liabilities = Stockholders’ Equity.
  

What Is an Example of a General Ledger Entry?

Consider the following example where a company receives a $1,000 payment from a client for its services. The accountant would then increase the asset column by $1,000 and subtract $1,000 from accounts receivable. The equation remains in balance, as the equivalent increase and decrease affect one side—the asset side—of the accounting equation.