Asset Ledger: What it Means, How it Works

What Is An Asset Ledger?

The asset ledger is the portion of a company's accounting records that details the journal entries relating only to the asset section of the balance sheet. Asset ledgers will have many sub-accounts. The larger the company, the more numerous and complex the asset ledgers will be.

Understanding the Asset Ledger

When a business or its branch locations undertakes any transaction, it will record a journal entry for both sides of the transaction. Examples of typical business transactions include purchasing goods from suppliers, making sales to customers, and purchasing machinery and equipment to be used in manufacturing.

The two parts of a journal entry are called debit and credit. For asset accounts, a debit increases the account while a credit decreases the account. This is contrasted with liability and equity accounts, in which a credit increases the account, and a debit decreases it.

Simply put, the asset ledger is the log of entries affecting asset accounts from all recorded journal entries. Current assets are separated from long-term assets, and the component accounts of current and long-term assets are broken down. The sub-accounts to the asset ledger can be extensive. Types of fixed assets, for example, would be categorized into specific property, plant, and equipment (PP&E) categories and detailed individually.

The asset ledger is one of many subsidiary ledgers that feed into a company's general ledger. The information contained in the general ledger is used to construct the company's financial statements, including the income statement, balance sheet, and cash flow statement. The general ledger is considered to be a company's "official accounting record." Consolidated information from the asset ledger appears in the asset section at the top of the balance sheet.

Examples of an Asset Ledger

Using our examples from above, let's take a look at how this information would appear in an asset ledger.

Purchasing Goods From Suppliers

When purchasing goods from a supplier, a company would debit supplies (or inventory) and credit the cash account. This journal entry involves two asset accounts. The supplies account would be increased, and the cash account would be decreased. The amounts in this specific transaction will build with amounts from other transactions to calculate the supplies and cash account totals at the end of a fiscal period.

Making Sales to Customers

When making sales to customers, a company may offer a good or service on credit. In this case, at the time of sale, the journal entry would include a debit to accounts receivable (AR) and a credit to sales revenue. This journal entry involves only one asset account, AR, because sales revenue is an equity account. When the customer pays off their balance, the AR account will be credited (decreased) and the cash account will be debited (increased).

Purchasing Machinery to Be Used in Manufacturing

If a company purchases machinery, it will record the transaction as a debit to machinery (a fixed asset account) and a credit to the cash account. This journal entry involves two asset accounts. Machinery would be increased, and cash would be decreased.

Let's assume all of these transactions took place during an accounting period. The company made $250,000 in credit sales on 1/1, purchased $10,000 in supplies on 1/15, and purchased a $100,000 piece of machinery on 1/31. The customers paid their outstanding AR balance on 1/11. With only this available data, the asset ledger would appear as does below.

Asset Ledger vs. Asset Section of the Balance Sheet

Asset ledgers are internal records for a company; therefore, they are not disclosed publicly. For public companies governed by the Securities and Exchange Commission (SEC), financial statements are available to the public. The balance sheet of a company will itemize current and long-term assets, but the individual transaction data will not be available as it would be in an asset ledger.

Honeywell International (HON) listed the following assets on its consolidated balance sheet as of December 31, 2019:

• Current assets
• Cash and cash equivalents
• Short-term investments
• Net receivables
• Inventories
• Other current assets
• Noncurrent assets
• Property, plant, and equipment
• Investments and long-term receivables
• Goodwill
• Intangible assets
• Other long-term assets

In general, some additional details may be provided in a company's notes to financial statements, but the specifics of individual business transactions are kept in records by the company. The transaction details are contained in specific asset accounts, which are then used to "build up" the asset line items that you see on a balance sheet.

Both internal auditors and independent auditors may review these and other ledgers to check for completeness and accuracy to make sure the process of financial statement compilation is sound.