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General Ledger - Some accounting terms relating to general ledgers

Introduction

This article does no more than list a few accounting terms, with a simple explanation of each.

Account

Each category of money is called an 'account'.

Account Groups

There are 4 major 'account groups' in the ledger.

The 'account groups' are: 

        'Assets'
        'Liabilities'
        'Income' or 'Revenue' or 'Production'
        'Expenditure' or 'Expenses' or 'Consumption'

Assets

'Assets' are what the enterprise owns.

Typical 'asset' 'accounts' are: 

        Cash account
        Equipment account
        Real estate account
        Debtors account

A business might usefully have 4 'asset' 'accounts', corresponding to these 4 'assets'.

Balance

Businesses need to keep track of the 'balance' of each 'account'.

Books of Account

These are the financial records of a business.

Consumption

Whatever the enterprise consumes is recorded in a 'consumption' or 'expense' 'account'.

Typical 'consumptions' are: 

        Payments for wages
        Payments for tax
        Payments for electricity
        Payments for telephone
        Payments for postage
        Payments for raw materials

Depreciation

This is allowing for wear and tear of 'assets'.

Expenditure

See 'Consumption'

Expenses

See 'Consumption'

General Ledger

The 'general ledger' is the mechanism for keeping these 'account' 'balances'.

Income

See 'Production'.

Liabilities

'Liabilities' are what the enterprise owes.

Typical 'liability' 'accounts' are: 

        Mortgage account
        Credit card accounts
        Bills payable or Creditors account

'Liabilities' might be recorded in a mortgage 'account', a credit card 'account' and a bills payable or creditors 'account'.

Loss

If the enterprise 'consumes' more than it 'produces', it makes a loss.

Net Worth

The 'net worth' of a business at any point in time is the difference between its total 'assets' and total 'liabilities'.

Production

Whatever the enterprise produces is recorded in a 'production' or 'income' 'account'.

Typical 'productions' are: 

        Sales of goods and services
        Interest on money in the bank
        Reimbursement of 'expenses' incurred on behalf of someone else

Profit

If the enterprise 'produces' more than it 'consumes', it makes a profit.

Revenue

See 'Production'.

Transaction

Anything a business enterprise does relating to money must be recorded in the 'books of account'. The record of any particular event is called a 'transaction'.

Typical 'transactions' are: 

        Paying bills
        Sending invoices
        Purchasing goods by credit card
        Lending or borrowing money
        'Depreciation'

Every 'transaction' refers to categories of money called 'accounts'.

Author

Ron Savage.

Home page: http://savage.net.au/index.html

Licence

Australian Copyright © 2002 Ron Savage. All rights reserved. 

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