General Ledger: What is it and how to fill out a general ledger template

Accounting ledgers are an essential part of small business' bookkeeping practices. As a small business owner, you need to be aware of all the transactions your business has completed in an accounting period. That’s where the ledger comes into play.

Financial statements like the income statement, balance sheet, and statement of cash flows show the financial health of a business. Business owners can generate all three statements using the accounting cycle, which includes the general ledger.

The accounting cycle has four steps:

• Gather source documents: Transactions post from source documents like receipts and invoices. Each accounting document is used to post a journal entry.
• Post journal entries: A journal entry includes an account number, a date, a Rand amount, and a description of the entry. In some cases, accountants post information to control accounts and then transfer the data into a journal entry.
• Record entries in the general ledger: The journal entries post to the general ledger. While some small businesses use Excel, accounting software — especially cloud-based software — is a more efficient way to maintain general ledger accounting records.
• Generate financial reports: To produce the financial statements, the accountant generates a trial balance that lists each account and the current balance. You can use an adjusted trial balance to generate financial reports.

In financial accounting, a company’s main accounting record is its general ledger. Although there are tools that automatically categorise these transactions, like bank integrations, it’s still important to know the basic components of general ledger accounts. Knowing these components means you can spot potential issues in your financial data.

Defining accounting ledgers

An accounting ledger is part of the bookkeeping system and is used by businesses to record all their financial transactions. Businesses will create separate categories for such transactions, which are known as accounts. All account records of a company will be listed and contained within the general ledger, or principal book of accounts.

What does a general ledger include?

A general ledger has four primary components, these include a journal entry, a description, debit and credit columns, and a balance.

• A journal entry: The number of each journal entry posted to the account and the date of the entry.
• A description: A description of the transaction.
• Debit and credit columns: Each journal entry posts a debit or credit to the general ledger.
• A balance: A general ledger lists the account balance each time a debit or credit posts to the account. At months-end, after all the journal entries post, the ending balance is calculated.

You can use the account balances in the general ledger to generate the trial balance, which lists every account and the current account balance. The dollar amount of total debits must equal total credits in the double-entry accounting system.

The general ledger must include all accounts of a business that will appear on their financial statements at the end of an accounting period. These are known as general ledger accounts or GL accounts.

The five key type of GL accounts are:

• Assets
• Liabilities
• Equity
• Revenue/Income
• Expenses

What is the Purpose of an Accounting Ledger?

As a company must account for all their financial transactions, the GL accounts act as a record of all transactions involving that specific account. These entries correspond with the company’s journal entries, which track all increases and decreases to accounts.

In each accounting period, entries and account listings are compiled into the essential financial statements of a business, including the balance sheet and income statement. These documents reflect the overall financial position of a company, and this information is used both internally and externally to measure the success of a business and ensure that all dealings meet governing body regulations.

Subsidiary Ledgers and Control Accounts

The general ledger contains all accounts associated with the business, sometimes these are so large that they need to be broken down into further detail. This is where subsidiary ledgers come into play, as these record and track these lower-level accounts.

A general ledger account that holds all subsidiary ledger accounts is known as a control account.

Chart of Accounts

The general ledger contains a chart of accounts, which is a list of all accounts that can be found within the ledger that are used by the business.

The following is an example of the different accounts that are contained within a general ledger:

By no means are these the only accounts that will show up in the ledger. Businesses have an expansive list of accounts, so you will need to make as many as required to track all transactions.

For example, the asset accounts could contain cash in hand, cash in the bank, accounts receivable, prepaid expenses, real estate, machinery, and stock.

How do you fill out an accounting ledger?

To correctly record an increase or decrease to an account within your business, you'll need to use either debit and credit for the double-entry bookkeeping method. This is a principal method of accounting in which transactions are recorded in at least two journal entries, debit to an account and corresponding credit to an account.

Here are the steps you need to take to fill out an accounts ledger:

• Create a ledger per account type, filling out the account and account number
• Add columns for the date, journal reference or number, and description
• Another column for the debits, credits, of the transaction and the balance
• Take the journal entry information and re-enter into the corresponding account
• Record all transactions and adjust entries when needed
• Combine all account information to create a ledger

Accounting Ledger Example and Template

Download this free general ledger template.

To better understand how a general ledger is used, let’s review the cash general ledger account of Centerfield Sporting Goods.

Account #1000 is the cash account, and is a partial listing of the general ledger for January 2024. The ledger reports each journal entry that impacted the cash account.

Note the following:

• The January 1 beginning balance is R80,000, and the balance matches the December 2023 ending cash balance.
• The debit balances and credit balances post in separate columns.
•  Purchases made on January 1 and January 5 decrease the cash account. Journal entry #1 indicates that stock is debited (increased) by R10,000, and cash is credited (reduced) by R10,000. If you checked the stock general ledger account, you’d also find journal entry #1.
• A customer makes a cash payment on January 9, and the cash account increases with a R6,000 debit.

On January 31, after all of the cash journal entries post, the general ledger lists the ending cash balance.

FAQs about General Ledger