Accounting ledgers: A beginner’s guide to ledgers

How general ledgers work

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. 

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 is important to note, however, that the number of debit and credit entries does not have to be equal, as long as the trial balance is even.

What's included in an accounting ledger

The purpose of general ledger accounting is to create a full record of a business’s transactions, which a business can use to prepare its financial statements. The information included in an accounting ledger includes:

• A journal entry number and date
• A description of the transaction
• Debit column
• Credit column
• Account balance

The general ledger also contains a chart of accounts, which contains the account names and numbers for categories such as: 

• Assets
• Liabilities
• Equity
• Revenue
• Expenses
• Other income and expenses

How to create an accounting ledger

Making an accounting ledger is fairly straightforward. To create and format a general ledger to accurately track your business’s financial situation, follow these four steps: 

1. Set up ledger accounts. These are assets, liabilities, equity, revenue, and expenses. 
2. Create columns. It helps to create your ledgers in the double-entry style. This means you’ll need to create two sides on a ledger—one for credits and one for debits. Each side will have columns for the date, description, the ledger or folio number, and an amount. 
3. Record transactions. As you conduct business, record the transactions in the appropriate ledger. At the end of your reporting period, you’ll consolidate the data from all ledgers into the general ledger.
4. Create a trial balance. The trial balance is the record of all credits and debits in your general ledger. If everything has been accounted for and recorded correctly, the balance of the credit and debit columns should be equal. When your trial balance is equal, your books are balanced.

Your ledgers should always have the information you need to be able to accurately track where money is coming from and where it's going. QuickBooks Online can connect you to experts to answer your questions about general ledger accounting through its QuickBooks Live Expert Assisted, with verified expertise to support your whole business.*

The difference between journals and accounting ledgers

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. Every transaction should be recorded in chronological order in a journal with as much detail as needed to ensure that it can be transferred to a ledger and serve as a resource for anyone who needs more information about an entry. 

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.

Other types of business ledgers

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.

Purchase ledger

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:

• Date of purchase
• Supplier name
• Invoice or purchase order number
• Amount paid
• Tax paid

Sales ledger

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:

• Date
• Customer name
• Invoice number
• Number of items sold
• Tax charged on items sold
• Shipping cost

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Streamline your accounting and save time

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 QuickBooks 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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