A ledger entry refers to the recording of a financial transaction in a company’s accounting system, specifically within the general ledger. The ledger entry usually consists of at least one debit and one credit to maintain the fundamental accounting equation of Assets = Liabilities + Equity.
A ledger entry includes the following information:
- Date of the transaction: This is the date when the transaction took place.
- Accounts involved: These are the specific accounts that are affected by the transaction. For example, if the business pays rent, the accounts affected might be Cash (or Bank Account if a check or electronic payment was used) and Rent Expense.
- Debit or credit: Depending on the nature of the accounts involved and the type of transaction, each account will be either debited or credited.
- Amount: This is the dollar amount of the transaction. Each transaction must have equal total debits and credits to keep the books balanced.
- Description: This provides details about the transaction.
Example of a Ledger Entry
Let’s look at a simple example of a ledger entry for a hypothetical business:
On July 10th, 2023, the business purchases $500 worth of office supplies and pays with its business checking account.
Here is how the ledger entries might look:
In this transaction, the “Office Supplies” account is debited by $500, increasing the value of the office supplies the business has on hand. At the same time, the “Checking Account” is credited by $500, decreasing the amount of money the business has in that account.
This entry maintains the fundamental accounting equation: assets (office supplies and cash in the checking account) equals liabilities plus equity. In this case, while the total assets remain the same, their composition has changed due to this transaction.