General Ledger Definition, Importance, Account Types

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This data from the trial balance is then used to create the company’s financial statements, such as its balance sheet, income statement, statement of cash flows, and other financial reports. The general ledger is comprised of all the individual accounts needed to record the assets, liabilities, equity, revenue, expense, gain, and loss transactions of a business. In most cases, detailed transactions are recorded directly in these general ledger accounts. In the latter case, a person researching an issue in the financial statements must refer back to the subsidiary ledger to find information about the original transaction. The general ledger is usually printed and stored in an organization’s year-end book, which serves as the annual archive of its business transactions. A general ledger is the system of record for an organization’s financial transactions, whether it’s maintained on paper, on a computer, or in the cloud.

  • This way you can make sure that you have enough purchases for the smooth manufacturing of the products.
  • Their net balances, positive or negative, are added to the equity portion of the balance sheet.
  • GLs are more common with bigger companies but can small businesses also benefit from them?
  • The principal book which contains all set of accounts (viz. nominal, personal and real accounts), is known as Ledger.

Goods-receipt/invoice-receipt accounts can have either a credit or debit balance. Broadly, the general ledger contains accounts that correspond to the income statement and balance sheet for which they are destined. The reconciliation process is a matter of double-checking important accounts. Reconciliation involves checking each account within a general ledger to verify accuracy. The process begins by gathering the information for each account in review, then examining any journal entries which have been made to correct errors in the ledger.

Is an accounting ledger used in double-entry bookkeeping?

Blockchain allows the ledger to be distributed across users worldwide, and each user is part of the entire network, making it less dependent on a single centralized node.

The net result is that both the increase and the decrease only affect one side of the accounting equation. The journal doesn’t have a direct role in preparing financial statements and reports like profit and loss accounts and more. Ledger refers to the main book of accounts that categorizes transactions recorded in a journal. The credit balance is written on the debit side as, “To Balance c/d”. The totals of both the debit and credit side are written on the two sides opposite one another.

The transactions in a general ledger are organized into five main types; assets, liabilities, equity, revenue, and expenses. Despite advances in software technology, there will always be a need to record non-routine transactions in general journals, such as sales of assets, bad debt, partial payments, and depreciation. Some organizations keep specialized journals, such as purchase journals or sales journals, that only record specific types of transactions.

If they do not match, the general ledger is said to be out of balance, and must be corrected before reliable financial statements can be compiled from it. General Ledger Accounts are the basis on which you prepare Trial Balance. From Trial Balance, you are able to prepare statements of final accounts. Such financial statements help you in knowing the profitability and overall financial position of your business. So, General Ledger contains information related to different accounts. These accounts provide information that helps you in preparing your business’ financial statements.

Accounting ledgers: A beginner’s guide to ledgers for 2023

But since bookkeeping by hand takes 1,000 times longer, most business owners and bookkeepers use accounting software to build their general ledgers. A general ledger can have any number of subledgers, sometimes also known as journals. Some of the most common types of subledgers include accounts payable, accounts receivable, cash, assets, expenses, and income. The transactions are then closed out or summarized in the general ledger, and the accountant generates a trial balance, which serves as a report of each ledger account’s balance.

What is a General Ledger (GL)?

Furthermore, unlike journal where transactions are recorded in chronological order as they occur. Thus, you record transactions in the ledger by classifying them under various account heads to which they relate. Further, this could become a cause of concern for you as a business entity.

Types of General Ledger Accounts

Further, the purchase ledger helps you to know the amount you pay to the creditors as well as the outstanding amount. Besides this, you can refer back to the purchase details in case you need to so in the future. This means you first need to record a business transaction in your Journal.

Remember, you need to record each of them in Journal in the order in which they occur. Once you record the transaction in the Journal, you are then required to classify and transfer it into a specific General Ledger account. Therefore, a General Ledger helps you to know the ultimate result of all the transactions that take place with regards to specific accounts on a given date. However, once you step out of these categories, consider double-entry bookkeeping. If you’re recording a large number of transactions every month, keeping your ledger organized can get tricky. As a supplement to the general ledger, your chart of accounts lists the account names and purposes of all your sub-ledgers.


Transactions that first appear in the journals are subsequently posted in general ledger accounts. Then, account balances are calculated and transferred from the general ledger to a trial balance before appearing on a company’s official financial statements. In accounting software, a general ledger sorts all transaction information through the accounts. Also, it is the primary source for generating the company’s trial balance and financial statements.

The debit and credit accounts are then totaled to verify that the two are equal. If they aren’t, the accountant looks for errors in the accounts and journals. The general ledger functions as a collective summary of transactions posted to subsidiary ledger accounts, such as cash, accounts payable, accounts what is a money market savings account receivable and inventory. All companies have a specific set of accounts that they use to record transactions. The list of these accounts is most often called the chart of accounts. Depending on a company’s size, its chart of accounts might have a large number of accounts or just a few accounts.

Unlike Operating Expenses, the Non-Operating Incomes and Expenses are one-time incomes or expenses that you earn or incur. The stockholder’s equity refers to the excess of assets over liabilities of your business. In other words, these are the assets remaining after you pay off all the debts and the liabilities.