From naming sides to keeping a running total
By now you can look at a transaction and say which account gets a debit and which gets a credit, and you trust that the two sides will always match because they keep the accounting equation in balance. That skill answers 'which way?'. It does not yet answer the question an owner actually asks: 'how much cash do we have right now?' For that you need somewhere to pile up all the debits and credits that ever touch an account, and a tidy way to net them into a single number.
The simplest tool for this is the T-account, named because it is literally drawn like the letter T. Write the account's name across the top, draw a vertical line beneath it, and you have two columns: everything on the left is a debit, everything on the right is a credit. That is the whole device. It is a sketch for thinking — scribbled on scrap paper or a whiteboard — not a formal report, but it makes the abstract 'left equals right' rule into something your eye can follow.
Reading a balance off a T
Each T-account holds the whole history of one account — say, Cash. As transactions happen, you stack debit amounts down the left and credit amounts down the right. To find the account balance, you total each side, subtract the smaller from the larger, and the leftover sits on the side with the bigger total. That winning side names the balance: a Cash account that ends up heavier on the left has a debit balance; heavier on the right, a credit balance.
Which side a healthy account is expected to land on is its normal balance. Assets and expenses normally rest on the debit (left) side, because that is the side that increases them; liabilities, equity, and revenue normally rest on the credit (right) side. This gives you a free sanity check. If your Cash T-account somehow shows a credit balance, the books are claiming more cash left than ever came in — almost always an error or an overdraft, and a flag worth chasing before you trust the number.
The general ledger: a shelf of accounts
One T-account tracks one account. A business has many — Cash, Accounts Receivable, Supplies, Accounts Payable, Owner's Equity, Sales Revenue, Rent Expense, and so on. The general ledger is simply the complete collection of all of them: one formal account each, gathered in one place. If a single T-account is one folder, the general ledger is the whole filing cabinet, and the master list of which folders exist is the chart of accounts.
There is a clean division of labour here that is worth holding onto. The general journal records events in date order — the diary of what happened, mixing all account types together. The ledger reorganizes that exact same information by account, so each account gathers all of its own activity. The journal answers 'what happened, and when?'; the ledger answers 'how much is in this account now?'. Journal first, by date; ledger second, by account.
Moving the amounts from the journal into the ledger is called [[posting|posting]]. For each line of a journal entry, you find the named account in the ledger and record the amount on the same side it appeared in the journal — a journal debit becomes a ledger debit, a journal credit becomes a ledger credit. Posting never changes an amount or flips a side; it only refiles the figure by account. In a computer system this happens the instant you save the entry, but the concept is unchanged: until something is posted, no ledger balance reflects it.
A tiny worked example: three transactions
Let us post a fresh business's first three transactions and watch the Cash account take shape. Transaction one: on June 1 the owner invests 10,000 of her own money — debit Cash 10,000, credit Owner's Equity 10,000. Transaction two: on June 2 the firm pays 600 cash for rent — debit Rent Expense 600, credit Cash 600. Transaction three: on June 3 a customer pays 800 cash for a service — debit Cash 800, credit Service Revenue 800. Each is a balanced entry; now we follow only the Cash side.
Cash
(debits) | (credits)
----------+-----------
Jun 1 10,000 |
Jun 2 | 600
Jun 3 800 |
----------+-----------
totals 10,800 | 600
----------+-----------
balance: 10,200 debit (10,800 - 600)Read it slowly. The left side totals 10,800 (the 10,000 investment plus the 800 received), the right side totals 600 (the rent paid). Net them — 10,800 minus 600 — and Cash has a debit balance of 10,200. That sits on the debit side, exactly the normal balance we expect for an asset, so the number passes its sniff test. Notice that the other half of each entry has quietly built up its own account too: Owner's Equity, Rent Expense, and Service Revenue each have a T of their own elsewhere in the ledger.
Running balances: the form ledgers really use
Netting a whole T-account at once is fine for a sketch, but real ledgers — and every accounting app — prefer a [[running-balance|running balance]]: a third column that shows the up-to-date balance after every single posting, just like the balance column in a checkbook or a banking app. You never wait until the end; the current total is always on the latest line.
- Start the balance at zero (or at last period's closing figure).
- Jun 1 — post the 10,000 debit. It is on Cash's normal (debit) side, so add: running balance 10,000 debit.
- Jun 2 — post the 600 credit. It is on the opposite side, so subtract: running balance 9,400 debit.
- Jun 3 — post the 800 debit. Same side as the balance, so add: running balance 10,200 debit — the same figure the T-account gave.
These ledger balances are not the finish line; they are the raw material for everything visible in accounting. List every account's balance side by side and you get a trial balance; group those same balances into assets, liabilities, equity, revenue, and expenses and you get the financial statements. But the chain has a sober limit worth repeating: posting and balancing only guarantee the arithmetic, never the truth. A figure cleanly posted to the wrong account still produces a tidy, balanced, and quietly incorrect ledger.