What is a General Ledger?

A general ledger represents the record keeping system for a company's financial data with debit and credit account records validated by a trial balance. The general ledger provides a record of each financial transaction that takes place during the life of an operating company.

The general ledger holds account information that's needed to organize the company's financial statements, and transaction data is segregated by type into accounts for assets, liabilities, owners' equity, revenues, and expenses.

How a General Ledger Works

A ledger is that the foundation of a system employed by accountants to store and organizes financial data wont to create the firm’s financial statements

The transactions are then closed out or summarized to the overall ledger, and therefore the accountant generates an attempt balance, which is a report of every ledger account’s balance. The balance is checked for errors and adjusted by posting additional necessary entries, and then the adjusted balance is employed to get the financial statements.

Examples of General Ledger Accounts

Some of the more common record accounts and the way they're further arranged within the ledger include:

1. Asset accounts like cash, assets, inventory, investments, land, and equipment.
2. Stockholders' equity accounts like common shares, retained earnings, treasury shares, and accumulated other comprehensive income
3. Some of the overall ledger earnings report accounts and the way they're arranged include:
4. Operating revenue accounts like sales and repair fee revenues
5. Nonoperation or other income accounts like gain on sale of assets, expense, and loss on disposal of assets.

Reasons Why You Need a General Ledger

Obviously, it’s always up to you (and your financial advisor) to make a decision what's right for your small business. You’ll be doing just fine without a ledger, during which case you'll not want to boil the ocean! But just in case you’re wondering, there are seven compelling reasons why you'll want to use a ledger for your small business:

1. It provides an accurate record of all financial transactions
2. It helps you compile an attempt balance, so your books balance
3. It makes filing tax returns easy because you've got expenses and income is in one place
4. It reports real revenue and expenses in order that you'll stay top of paying
5. It helps you notice unusual transactions immediately
6. It helps you identify (and stop) fraud
7. It aids in compiling key financial statements which are crucial for evaluating your profitability, liquidity, and overall financial health. These include the income statement, earnings report and record.

The layout of a general ledger

A ledger features a typical layout that's followed closely by all businesses that use it in their accounting records. It’s divided into two sections that are balanced

1. The left side lists all debit transactions
2. The right side contains the credit transactions
3. Entries to the overall ledger are typically handled by a company’s accountant, though smaller businesses and freelancers sometimes prefer to manage the recording of basic entries themselves, working with an accountant when necessary.