What is an accounting ledger? An accounting ledger, also known as a general ledger, is the physical or digital record of a company’s finances. They can include liabilities, assets, equity, expenses, and revenue.
A general ledger, or an accounting ledger, is the main record of your business’s financial standing that centralizes all your financial transactions. Businesses use an accounting ledger to help keep finances in order and prepare several reports, such as balance sheets and income statements.
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A general ledger records transactions and helps generate financial statements for investors, creditors, or even regulators. This information can help management make financial and data-based decisions.
For example, a bookkeeper or accountant could use an accounting ledger or general ledger to identify the source of increased expenses and make the necessary corrections.
Double-entry bookkeeping relies on ledgers to track credits and debits, using a trial balance to make sure everything stays balanced. Tools like AI-powered financial assistants can help you streamline this process by automating many tedious tracking tasks.
A general ledger uses the double-entry accounting method for generating financial statements. Double-entry bookkeeping keeps the accounting equation, or balance sheet equation, in equilibrium by recording both debits and credits.
If the accounting equation is not balanced, there might be a mistake in your accounting. The balance sheet formula adds liabilities and equity to determine a business’s assets.
The balance sheet formula is:
Liabilities + Owner’s equity = Assets
The double-entry accounting method requires every transaction to have at least one debit (incoming money) and one credit (outgoing money) entry, which must always balance out.
It’s important to note that the number of debit and credit entries does not have to be equal, as long as the trial balance is even.
The purpose of general ledger accounting is to create a full record of a business’s transactions, which it can use to prepare its financial statements.
The key information included in an accounting ledger includes:
The general ledger also contains a chart of accounts, which contains the account names and numbers for categories, such as:
Making an accounting ledger is straightforward. To create and format a general ledger to accurately track your business’s financial situation, follow these four steps:
Your ledgers should always have the information you need to accurately track where money is coming from and where it's going.
Even with a solid ledger, small errors can throw off your books. Watch out for:
Regularly reviewing your ledger and using accounting software like QuickBooks can help you catch errors before they become bigger problems.
If you look at the information that’s recorded in an accounting journal and an accounting ledger, a lot of it would look the same. But there are some differences between how the two records function.
Think of your accounting journal as the first record of each transaction. Try to record every transaction in chronological order with as much detail as possible to ensure it can serve as a resource for anyone who needs more information about an entry and you can easily transfer it to a ledger.
A ledger is an aggregation of data from relevant journals. One key difference between a journal and a ledger is that the ledger is where double-entry bookkeeping takes place. That's why there are two sides to a ledger, one for debits and one for credits.
A general ledger, or accounting ledger, is one type of ledger. It's where the data from other ledgers is consolidated.
A general journal is the first step for recording your business transactions in chronological order. It’s the initial point of entry into your company’s accounts. Once transactions are recorded in the journal, they move to the general ledger, which organizes them by account to prepare financial statements and keep everything balanced.
In addition to the accounting ledger, there are several kinds of ledgers that you might use in the course of bookkeeping for your business. Most accounting software will compile some of these ledgers while still letting you view them independently. Depending on the size of your business and what your business does, you might not need to use all of them. Here are some common types of ledgers and when to use them.
Your purchase ledger is there to help you keep track of items your business buys. If your business doesn’t make enough purchases to warrant keeping them in their own ledger, you can include them in your general ledger.
Purchase ledgers can contain:
A sales ledger is a detailed list in chronological order of all sales made. This ledger is often also used to keep track of items that reduce the number of total sales, such as returns and outstanding amounts still owed.
Sales ledgers can contain:
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A sub-ledger, or subsidiary ledger, provides more detailed tracking for specific accounts. For example, you might have a sub-ledger for accounts payable or inventory purchases.
These ledgers break down transactions so you can see individual activity without crowding your main general ledger. Sub-ledgers ultimately support the entries in your general ledger by offering more granular detail.
A cash book is a unique type of record because it acts as both a journal and a ledger. It logs cash receipts and payments as they happen, maintaining a running balance similar to a bank account.
Because it’s updated daily, errors are easier to catch and fix in real time, rather than waiting for a monthly close. This makes it a vital tool for businesses that handle a lot of cash transactions.
Keeping an accurate general ledger does more than fulfill tax requirements—it gives you a clear picture of how your business is doing. A well-maintained ledger helps you:
With an organized ledger, you can focus more on growing your business instead of fixing errors or hunting down missing transactions.
Understanding what an accounting ledger is and its importance to your business finances can help you organize and track transactions more easily.
You can save time on bookkeeping tasks with experts by your side. QuickBooks Online users have access to QuickBooks Live Expert Assisted, where experts provide guidance, answer questions, and show you how to do tasks in QuickBooks. Have more time to work on what you love when you spend less time on bookkeeping.
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