General Ledger - Groups
Account Groups
The term General Ledger refers to the complete collection of financial accounts. Within the General Ledger are five general groupings of accounts:
| ASSETS | Things owned by or owed to a business. They consist of buildings, land, cash, equipment, and any receivables, or loans owed to your business. This section can also be divided with two sub sections: Current Assets and Fixed Assets. Current Assets are things you can easily convert to cash, like accounts receivable, prepaid insurances, and inventory. Fixed Assets are things you own like Buildings, Equipment, and the associated depreciation. |
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| LIABILITIES | Monies that you owe to others. The liability might be payroll taxes deducted but not yet paid, notes owed, mortgages, and bills owed (accounts payable). Until you pay the creditors, they have a temporary interest or equity in your business. Liabilities are broken into two to three sub categories as well for current and long-term liabilities or current, intermediate, and long-term. Long-term liabilities are items you will be paying on for more than seven years, intermediate are three to seven years and current is less than three years. |
| NET WORTH | The part of the business that is all yours. It is the difference between assets and liabilities. It reflects the original capital invested in the business plus the amount of earnings invested or retained in the business throughout the years. Net Worth accounts are also often referred to as “Capital Accounts” or “Equity Accounts.” Throughout this manual, and in the balance sheet, we identify these accounts by the title Net Worth. |
| INCOME | Accounts which produce revenue. They should be more accurately titled “Revenue Accounts,” but “Income Accounts’ is the term more commonly used. |
| EXPENSES | Costs incurred in order to earn revenue. Without some expense, there would be no revenue. |
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