The General Ledger module is a double entry
accounting system that follows generally accepted accounting procedures, GAAP. The chart of accounts uses account numbers
and can be divided up into departments for reporting purposes. Because the other accounting modules are integrated
with the general ledger, book keeping is much easier.
Before you can start using the general ledger module you will need to
setup your chart of accounts and if necessary setup departments.
Proper accounting practice requires a double entry accounting system. This means that each value input into the system is a credit to one general ledger account and a debit (+) to another. Since each entry affects two accounts by the same amount, debiting one and crediting another, the accounts are always in balance. Another way to look at accounting is to view the chart of accounts as a row of jars lined up along a wall with a label on each jar. The first jar might be labeled "Bank Account". One further down the line might be labeled "Phone Expenses". If a phone bill is paid the accounting system takes an amount of money out of the "Bank Account" jar and puts it into the "Phone Expenses" jar. Thus it can be seen that the sum of the credits will always be equal to the sum of the debits meaning the books will be in balance or the sum of the debits and credits together will be zero.
One might wonder where the money comes from to be transferred between jars. The point is that the jars (or accounts) start out empty and they stay empty to the extent that the sum of the money in the jars is always zero. A credit to one account is offset by a debit to another so that we have +1-1=0.
Asset accounts carry a debit balance (+)
Liability accounts and owner's equity accounts carry a credit balance (-)
Revenue accounts carry a credit balance (-)
Expense accounts carry a debit balance (+)
Owner’s equity=capital input+profit
(revenues are negative and expenses are positive)