Real-Life General Ledger Examples (With Entries)

The general ledger records all the financial transactions of a business. When revenue appears in one account but cash collected shows a different amount, the discrepancy typically suggests incorrect transaction posting rather than an actual financial problem.

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Transaction posting methods vary by business classification. Service businesses follow one posting logic, while retail businesses require a separate approach. Understanding the correct posting method for your business type ensures accurate financial records and prevents reconciliation issues.

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In this article, we’ll go over detailed general ledger examples for service and retail businesses. The examples demonstrate how transactions post to various accounts and how different business models need distinct recording methods.

A service business example: marketing agency

Riverstone Consulting operates as a three-person marketing agency. The chart of accounts includes Cash (Account 101), Accounts Receivable (Account 105), Service Revenue (Account 4000), and Operating Expenses (Accounts 5100-5200). Service businesses have simpler general ledger structures due to the absence of inventory accounts.

Transaction A - April 10: invoicing client

Riverstone completes a brand strategy project and invoices the client $8,000.

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Journal entry:

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Debit: Accounts Receivable (105) $8,000
Credit: Service Revenue (4000) $8,000

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General ledger impact:

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Accounts Receivable increases from $15,000 to $23,000
Service Revenue increases from $42,000 to $50,000

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Revenue recognition occurs at the time of billing rather than payment collection. ¹ The $8,000 remains in Accounts Receivable until the client remits payment. Revenue increases immediately, despite the absence of cash collection.

Transaction B - April 20: partial payment

The client remits $5,000 of the $8,000 invoice balance.

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Journal entry:

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Debit: Cash (101) $5,000
Credit: AR (105) $5,000

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Cash increases from $12,000 to $17,000, while AR decreases from $23,000 to $18,000. Revenue doesn’t change with this transaction. The revenue was recorded on April 10. This entry transfers value between two asset accounts (Accounts Receivable to Cash).

Transaction C - May 5: final payment

The client pays the remaining $3,000 balance.

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Journal entry:

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Debit: Cash (101) $3,000
Credit: Accounts Receivable (105) $3,000

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Cash increases from $17,000 to $20,000 while Accounts Receivable decreases from $18,000 to $15,000 (returning to the original starting balance). Each transaction affects at least two accounts. Debits always equal credits in all entries. The $8,000 transfers from Accounts Receivable to Cash through two separate payment transactions.

A common mistake to watch out for

Posting errors happen when staff members record transactions to incorrect accounts. If the $8,000 service revenue posts to Operating Expenses (5100) instead of Service Revenue (4000), revenue becomes understated by $8,000, while expenses become overstated by $8,000.

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Monthly general ledger reviews identify these errors. ⁶ Reviewing account balances reveals abnormally high operating expenses for April. Deeper investigation locates the posting error. A correction entry transfers the $8,000 from the expense account to the revenue account. Regular monthly reviews prevent year-end reconciliation complications.

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Service businesses record one journal entry per transaction. Invoicing creates Accounts Receivable and revenue, and payment collection converts Accounts Receivable to cash.

A retail business example: online outdoor gear

Cascade Outdoors sells hiking gear online. The chart of accounts includes Inventory (Account 106), Cost of Goods Sold (5000), and Sales Returns (Account 4200), plus standard accounts. Retail businesses require additional accounts to track inventory costs and product returns. ²

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Every retail sale requires two journal entries rather than one. This is the critical difference from service business accounting.

Transaction A - March 15: online sale

A customer buys hiking boots for $1,200. Cascade paid $720 to acquire the boots from the supplier.

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Entry #1 - Record the sale:

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Debit: Cash (101) $1,200
Credit: Sales Revenue (4100) $1,200

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Entry #2 - Record the cost:

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Debit: Cost of Goods Sold (5000) $720
Credit: Inventory (106) $720

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General ledger impact from this transaction:

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Cash: +$1,200
Sales Revenue: +$1,200
Cost of Goods Sold (5000): +$720
Inventory (106): -$720
Gross profit: $480

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The matching principle under Generally Accepted Accounting Principles (GAAP) requires recording both revenue and the associated cost. ³ Recording only the revenue entry without the corresponding cost entry produces inaccurate profit calculations. Posting only the first entry results in reported profit of $1,200 instead of actual profit of $480. This error happens when point-of-sale systems automatically post revenue entries but inventory modules fail to generate corresponding cost entries. Companies may not detect this issue until reviewing their profit margins months later. Hundreds of improperly posted sales require extensive reconstruction to correct. The ability to identify these discrepancies depends on regular financial statement review.

March 22: customer returned a defective tent

A customer returns a defective tent that originally sold for $450 (cost  $270).

Entry 1 reverses the sale:

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Debit Sales Returns (4200) $450
Credit AR (105) $450

Entry 2 restores the inventory:

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Debit Inventory $270
Credit COGS (5000) $270

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Revenue is reduced by $450 through a contra-revenue account. ⁵ COGS is reduced by $270, and iInventory is increased by $270 (the tent goes back in stock for resale). AR decreases by $450. Product returns require reversing both entries from the original sale. Leaving out the second entry creates incorrect inventory balances, overstated cost account figures, and inaccurate profit margins.

Month-end reconciliation procedures

A physical count on March 31 reveals $101,500 in inventory, while the general ledger shows $103,000. Inventory discrepancies result from theft, damaged goods, data-entry errors, or unrecorded transactions. The general ledger says that $103,000 in inventory exists, but the physical count turns up only $101,500 in actual goods. Adjustments are needed to align the general ledger with actual inventory numbers.

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The adjustment debits Inventory Shrinkage Expense (5150) $1,500 and credits Inventory $1,500. ⁴ The $1,500 loss impacts the profit and loss statement as an expense during the current month. Accurate inventory balances are key for proper financial reporting.

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Companies that carry out physical counts annually, rather than monthly, risk letting small discrepancies accumulate. A $1,500 monthly variance becomes an $18,000 annual discrepancy. Monthly physical counts enable investigation and correction of variances while transaction details are still easily accessible. Monthly reconciliation gives you more control over inventory accuracy than annual counts.

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Retail operations need dual entries per transaction: revenue entry and corresponding cost entry. Monthly physical inventory counts reconcile general ledger balances to actual inventory quantities.

Understanding control accounts and subledgers

The general ledger displays total balances for each account. Subledgers offer detailed breakdowns of the transactions that make up those totals.

Accounts Receivable example

General Ledger Account - AR (105): $18,000 total balance

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Accounts Receivable Subledger (aging report) details:

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Client A: $8,000 (Invoice #1045, due April 30)
Client B: $6,000 (Invoice #1046, due May 15)
Client C: $4,000 (Invoice #1047, due May 20)
Total: $18,000

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The subledger shows which customers owe outstanding amounts. Collections teams use subledger details to follow up on specific invoices. The general ledger tracks only the aggregate amount owed.

When balances don’t match

The general ledger shows $18,000, while the AR aging report shows $16,000.

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Common causes of such discrepancies include:

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• Journal entries being posted directly to general ledger without updating the subledger
• Invoice batches being saved but not posted
• Payments being applied in one system but not reflected in another

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The resolution process involves locating the $2,000 difference, determining which system contains the accurate data, and posting correcting entries to align both systems. Monthly reconciliation prevents discrepancies from accumulating over time. Subledger totals must equal general ledger control account balances. ⁷ This isn’t optional. Monthly reconciliation flags up discrepancies before they can develop into complex multi-month reconciliation projects that need days to resolve.

Start with these two examples

Service business posting (single entry per transaction) and retail business posting (two entries per transaction) represent approximately 80% of small-business general ledger activity. Other transaction types follow variations of these fundamental patterns with different accounts and amounts but the same mechanics.

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Organizations can apply these methods to their own transactions by selecting three recent transactions and tracing them through the general ledger.

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