A general ledger is a two-entry document that indicates account debits and credits. A bookkeeper records corporate operating activities by debiting and crediting financial accounts such as assets, liabilities, revenues, expenses and equity. This helps accountants prepare financial statements that conform to professional standards.
A subsidiary ledger is a portion of a general ledger. It helps an accountant or a financial auditor review account details and ensure that general ledger amounts include subsidiary ledger data. To illustrate, a pharmaceutical company's general ledger indicates $1 million in accounts receivable. A closer look reveals that subsidiary ledgers for Customer A, Customer B and Customer C indicate $700,000, $200,000 and $100,000, respectively.
An asset is a physical or nonphysical resource that a firm owns. A short-term asset is a resource that a company intends to use in operating activities in 12 months or less. Examples include cash, accounts receivable and inventories. A long-term asset is a resource that a company intends to use for more than a year. Examples include property, machinery and equipment.
A liability is a debt a borrower must repay. A debt may also be a financial promise or guarantee a business partner must honor on time. A short-term or current debt is a liability that a borrower must repay within 12 months. Examples include accounts payable and fiscal debt. A long-term debt has a maturity exceeding one year. Examples include bonds payable and other long-term corporate borrowings.
An expense is a charge or cost that a company incurs when selling goods or providing services. An operating expense is a charge that relates to the primary activity of a company and include the cost of goods sold or salaries. A non-operating expense is a cost that relates to "peripheral," or nonprimary, operating activities. One examples of a non-operating expense is a loss on an asset sales.
Revenue is income that a company generates through operations. These operating activities may include selling goods and providing services. A firm's total revenue indicate operating revenue and nonoperating revenue. An example of operating revenue is earnings from sales. Nonoperating revenue items include gains on sales of long-term assets, such as property, plant and equipment, or short-term assets, such as stocks and bonds.
Equity refers to investments that corporate owners make in a firm. A corporate owner is otherwise known as a shareholder, equity holder or stockholder. A shareholder may invest in a firm by buying common stock or preferred shares. A stockholder holds voting rights and attends annual stockholders' meetings. A company may also pay dividends to equity holders periodically, in accordance with corporate policies.
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