What are ledger accounts?

What are ledger accounts?

Ledger accounts are an important part of accounting. The term “ledger” is used as a collective name for all ledger accounts. The name can be traced back to the past when large books were used before digitization. It is much easier in this day and age to maintain accounting using accounting software. The term “ledger account” can be explained as an overview of income and expenses within a specific category. Income and expenses are relevant to each other within that category.

What are ledger accounts and what types are there?

Ledger accounts are used to organise accounting in an orderly manner and to efficiently create a balance sheet as well as a profit and loss statement. This is done with a simple click in online accounting software. Moreover, the most important ledger accounts are already set up in accounting software. There are two types of ledger accounts to distinguish, namely income accounts and balance accounts.

Income Accounts

An income account consists of a ledger for revenues and expenses. Therefore, this account is also known as a profit and loss statement. An example of this is a category that represents purchases, but also sales and travel expenses are part of the income account, just like advertising costs. The ledger accounts in the form of a profit and loss statement can be distinguished in revenue: special gains and sales, and in expenses: depreciation, selling expenses, and office expenses.

Balance Accounts

With a balance account, there is a ledger account that relates to assets and liabilities. An example of this is the inventory of an office or the balance on the bank account. Loans are also part of a balance account as a ledger account. The most commonly used ledger accounts in balance accounts can be distinguished into assets and liabilities. Assets include fixed assets, current assets, and liquid assets. These assets are found on the left side of the balance sheet. Liabilities include equity, current liabilities, creditors, and long-term liabilities. Liabilities are found on the right side of the balance sheet.

Sublegers

Within the mentioned ledger accounts, subledgers can naturally be distinguished. It is also possible to add a subledger yourself. This is useful, for example, if you work with cash, where a cash account can be added. In practice, ledgers are reconciled with accounting in an old-fashioned way, where a separate book was kept for each cost type. In modern online accounting software, you do not have to create ledger accounts yourself.