This week we examine the last book of historical bookkeeping, the Ledger, which presents the position as of some point in time.
The first book of bookkeeping, the Day Book (today’s source systems) gives a running list of transactions with customers or vendors. The second book of bookkeeping, the Journal, turns those transactions into journal entries, reflecting through debits and credits the flow of things through different accounts like cash, inventory, payables, receivables. But the journals are still transaction oriented, not giving a sense of what has happened over time.
The Ledger contains the prior period (usually daily) balances, and these are updated for the total of the transactions. These positions give a sense of whether the business owner has made a profit, incurred a loss, or a host of other things. The ledger is the basis for all financial reporting processes.
This is an Episode 126 of Conversations with Kip, the best financial system vlog there is.