Ledger accounts hold financial information related to business transactions. Common types include revenue, cost of goods sold, expenses, assets, liabilities, and equity. They correspond to financial statements and are tracked in a company’s general ledger for accuracy.
A ledger account is part of a company’s accounting system designed to hold specific types of financial information related to business transactions. In double-entry bookkeeping, there are specific classes of ledger accounts that comprise the general accounting system. In some cases, a business may not use each account class, as it may not have transactions that fall into these categories. Common ledger account types include revenue, cost of goods sold, and expenses in addition to assets, liabilities, and equity. These accounts correspond to the financial statements of a company, mainly the income statement and the balance sheet.
A revenue ledger account contains information on all items sold by a business. The most common accounts here can be sales revenue, purchase discounts, and returns. The net between the first two and last two accounts presents the net sales of a company.
Cost of goods sold is the cost of inventory items sold to customers. All companies that sell inventory have to record a cost for these items, which corresponds to this ledger account. Deducting the total costs of goods sold from net sales results in a company’s gross profit over a specified period of time.
The last group of ledger accounts for the income statement is the expense category. Here, accountants record all the items a business needs to run it. Businesses must match expenses to earned income, which means payroll, utilities, and other expenses are needed in the account group.
Balance sheet accounts begin with the asset category. Assets include all the items that a business owns and uses for its standard business operations. They can be both physical and intangible and are typically the most valuable items a business requires to earn income in the business environment.
A liability ledger account includes data indicating that a business owes money to a supplier or vendor for goods. Another way of looking at liabilities is the claims made by outside parties against a company’s assets. Companies must pay liabilities to avoid problems with outside groups and legal actions for non-payment for goods or services.
Equity accounts represent the owner’s or shareholder’s claims against the company’s assets. This account is basically the difference between assets and liabilities listed on the balance sheet. Net profit and loss also enter this figure, increasing or decreasing depending on the information on the company’s income statement.
All of the above ledger account groups have representation in a company’s general ledger. Multiple accounts contain detailed information based on the general transaction type. Accountants balance and track information in each account for accuracy and relevance to company operations.
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