How to Read a General Ledger, Account by Account

How to read a general ledger: take one account at a time. Start at the account header and its beginning balance, follow each posting's date, type, number, name and amount, and watch the running balance change. The split column names the other side of each entry, and the number leads back to the source document.

The columns of a general ledger detail report

A general ledger detail report lists every posting to every account for a period, and most versions use the same eight columns: date, transaction type, number, name, memo, split, amount and balance. Each row is one side of one transaction: when it happened, what produced it, who it involved and where the other side went.

The ledger is the second stop in a bookkeeping system. The IRS Publication 583 describes a journal as the book where each transaction from the supporting documents is recorded, and says transactions are first entered in a journal and then posted to ledger accounts. The ledger report you receive from a client is that posted view, sorted by account.

Here is what each column means:

• Date is the transaction date, the date the software records the entry, which may differ from the day cash moved.
• Type names the kind of entry: deposit, check, invoice, bill, sales receipt, journal entry and so on. It tells you what source document to look for.
• Num is the reference number: a check number, an invoice number, a deposit slip number or a journal entry number.
• Name is the customer, vendor or employee on the transaction, if there is one.
• Memo is free text the bookkeeper typed. It is helpful when filled in and blank more often than anyone would like.
• Split names the account on the other side of the entry. When the other side has more than one account, the report prints a placeholder instead; the sample below uses "-Split-".
• Amount is the posting's effect on this account. Some reports show one signed amount, others show separate debit and credit columns.
• Balance is the running balance of this account after the row.

An annotated sample ledger

The sample below is for a fictional client, Quarry Hill Bike Repair. All names, numbers and amounts are made up for this example. It shows two accounts for June.

Read the check on June 4 across: on that date, check number 2207 went to Spoke & Chain Supply for tubes and cables, the other side of the entry is the parts expense account, checking fell by 615.00 and the balance after it is 9,085.00.

If you need this report as rows in a spreadsheet rather than a printed page, the steps for flattening ledger account headers into one row per posting carry the account number onto each line.

How do beginning and ending balances work in a general ledger?

Each account in a general ledger starts the period with a beginning balance, which is the ending balance carried forward from the end of the previous period. Every posting then moves the running balance up or down, and the last running balance is the ending balance. Beginning balance plus the period's increases minus its decreases always equals the ending balance.

In the Quarry Hill sample, checking starts June at 8,240.00. The deposit adds 1,460.00, the check takes away 615.00, and the sales receipt adds 2,300.00. That is 8,240.00 plus 1,460.00, minus 615.00, plus 2,300.00, which is 11,385.00, the balance printed on the last row. The net change for the month is 3,145.00, the figure on the total line.

Repair revenue starts at 41,900.00 and adds 1,460.00 and 2,100.00 to end at 45,460.00. That beginning balance is not zero because the report shows revenue earned earlier in the client's fiscal year, and June picks up where May left off. A ledger run for a single month of a revenue account still carries the year-to-date figure in its first row.

Two practical checks follow from this:

• Compare the beginning balance with last period's ending balance. If December ended at 7,950.00 and January begins at 8,100.00, something was posted to a closed period after the books were handed over.
• Recompute a few running balances by hand. A balance that does not follow from the row above usually means the report is filtered, the rows are sorted by something other than date, or an entry was edited.

For a cash account, the ending balance on the ledger should agree with the bank's records once timing differences are accounted for. That agreement is the subject of a separate process; see what a bank reconciliation is and how it works.

The ending balances of all accounts, listed together, make up the trial balance. How that roll-up works is covered in the comparison of how a general ledger rolls up into a trial balance.

Debits and credits by account type in the ledger

Every posting in a general ledger is either a debit or a credit, and whether that raises or lowers the account depends on the account type. Debits increase assets and expenses. Credits increase liabilities, equity and revenue. Reading a ledger correctly means knowing which side is normal for the account you are looking at.

Publication 583 describes the double-entry system this way: each account has a left side for debits and a right side for credits, and every transaction is recorded as a debit entry in one account and a credit entry in another. Intuit's article on how accounts are affected by debits and credits gives the effect by account type:

This matters because many ledger reports show a single amount column, signed from the account's point of view. In the Quarry Hill sample, the 1,460.00 deposit appears as a positive amount in checking and as a positive amount in repair revenue. That is not two debits. It is a debit to checking, which increases an asset, and a credit to revenue, which increases a revenue account. Both balances went up.

The same Intuit article says the debit and credit amounts for individual accounts can be seen by customising the General Ledger report to show debit and credit amounts. When a client's report shows a single column and you are not sure which side a posting landed on, ask for that version, or look at the split account to see the other side.

Tracing a general ledger entry to its source document

Tracing a general ledger entry means following its type and number back to the document that created it: the check, the invoice, the deposit slip or the journal entry. The type column tells you what kind of document to look for, the number column tells you which one, and the name and date narrow the search when numbers repeat.

Take the June 4 posting in the Quarry Hill sample. The type is Check and the number is 2207. The name is Spoke & Chain Supply and the amount is 615.00. To trace it:

1. Find check 2207 on the June bank statement for account XXXX-6619. It should clear for 615.00, on or after June 4.
2. Find the supporting document from Spoke & Chain Supply. A vendor invoice for tubes and cables totalling 615.00, dated on or before June 4, is what the entry claims.
3. Confirm the split. The other side went to 5000 Parts. The invoice should describe parts, not a tool purchase or a personal item.

Publication 583 explains why this trail exists. Purchases, sales, payroll and other transactions generate supporting documents, such as sales slips, paid bills, invoices, receipts, deposit slips and canceled checks, and those documents support the entries in the books and on the tax return.

Journal entries are harder to trace, because there is no outside document behind them. A journal entry number leads to the entry itself, and the memo or an attached schedule should say why it was made. A journal entry with a blank memo and a round amount is the first thing to ask the client about.

When the source documents arrive in the same upload as the ledger, finding them is half the work. Schema CPA sorts each page of a client's upload by document type, issuer and period, so the ledger is separated from the bank statements and vendor invoices its entries point to. The workflow section of the Schema CPA homepage walks through that sorting step.

What does an odd general ledger balance tell you?

An odd general ledger balance is one on the wrong side of the account's normal balance, or one that should be zero and is not. A negative checking balance, a debit balance in accounts payable or a credit balance in an expense account each points to a posting in the wrong account, side or period.

Common examples and what they usually mean:

• Checking with a credit balance. Either the account was overdrawn or deposits were recorded somewhere else, often straight to revenue without passing through the bank account.
• Accounts payable with a debit balance. A bill was paid twice, or a payment was recorded without the bill it paid.
• An expense account with a credit balance. A refund or a reclassification was posted without the original expense, or an entry was reversed in the wrong direction.
• A clearing or suspense account that is not zero. Something entered the holding account and never left. Undeposited funds and payroll clearing accounts are frequent examples.
• Revenue that drops during the year. A large debit to revenue may be a correction, a credit memo or a misposted payment.

An odd balance is a question, not a conclusion. There may be a legitimate reason, such as an overdraft. The ledger lets you find the posting that caused it: scroll to the row where the running balance crossed zero and read the type, number and split.

Odd balances often show up first on a trial balance, where every account sits on one line. Importing that report into a workbook makes them easy to sort; the guide to trial balance import covers that step.

General ledger reading mistakes with split transactions

A split transaction is one entry with more than two lines, such as a single sales receipt divided between two revenue accounts. Read one line at a time, a split transaction can look like it does not balance, because the amount in one account is larger than the amount in each of the accounts on the other side.

The Quarry Hill sample has one. The sales receipt numbered 5513, from Ridgeview School District, adds 2,300.00 to checking, and its split column says "-Split-". In repair revenue, the same receipt shows only 2,100.00. Someone reading the revenue account alone might decide 200.00 went missing.

It did not. The full entry has three lines:

The remaining 200.00 posted to parts sales, an account that did not appear in the two-account excerpt. Debits equal credits once all three lines are in view.

Three habits prevent this mistake:

• Open the whole transaction whenever the split column says "-Split-", or run a journal or transaction detail report filtered to that number.
• Search by number across all accounts. Filtering a flattened ledger on 5513 shows every line of the entry together.
• Do not net a split across accounts. If two of the lines belong on different tax or statement lines, they must stay apart.

A second version of the mistake is assuming the split column names the only other account. On a two-line entry it does. On a split entry, the column on the checking line says "-Split-", but the revenue lines each say "1000 Checking", which is true for that line and incomplete for the transaction.