General Ledger Defined: What It Is & Why You Need One

A General Ledger is one of the important records in the system of accounting. It is prepared after you pass journal entries in the Books of Original Entry (Journal). Sales Ledger or Debtors Ledger is one of the three types of Ledgers that you prepare as a firm or a business entity. It records all the transactions that take place between you and your debtors. Here, debtors are nothing but the business entities to whom you have sold goods that you manufacture.

For example, on January 2, 2021, say you buy $4,000 worth of inventory with cash. While this is just a partial list, remember that any transaction made by your business will always affect your general ledger accounts accordingly. If you run a general ledger report from January 1, 2020 through February 29th, 2020, you will have beginning and ending balances readily displayed for both January and February. One of the best ways to better manage your expenses is to view in detail exactly what you’re paying each month. For example, cash and account receivables are part of the company’s assets.

What Is a General Ledger Template?

A general ledger provides a complete record of financial transactions for a business. Learn how it works, why it is important, and its examples in this guide. 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.

For more small business budgeting and balance sheet resources, see our list of downloadable small business balance sheet templates. In the first column, we see the type of account and the type of transactions within the account. It girls basketball is common to see the number of the transaction if it has been paid by check or entered in for tracking purposes. From recording every financial transaction to identifying potential pitfalls, it has a solution you need to know.

How to Use the General Ledger

Thus, your Sales Ledger tracks detailed information about goods sold to your customers. For example, say you purchase raw material from your vendor William Paper Mill throughout the year. Accordingly, all the cash or credit purchase transactions entered into with William Paper Mill would be recorded under the account of William Paper Mill. General Ledger refers to a record containing individual accounts showcasing the transactions related to each of such accounts. It is a group or collection of accounts that give you information regarding the detailed transactions with respect to each of such accounts.

• A general ledger uses the double-entry accounting method for generating financial statements.
• The difference between these inflows and outflows is the company’s net income for the reporting period.
• GnuCash includes excellent reporting options, with detailed asset and liability reports as well as a complete general ledger report.
• The general ledger is where the data from other ledgers (as well as any journals not accounted for in a ledger to this point) is added.

The account details can then be posted to the cash subsidiary ledger for management to analyze before it gets posted to the general ledger for reporting purposes. By this same analogy, a ledger could be considered a folder that contains all of the notebooks or accounts in the chart of accounts. For instance, the ledger folder could have a cash notebook, accounts receivable notebook, and notes receivable notebooks in it. Keep in mind that debit and credit amounts seem counterintuitive on the surface. If you deplete other assets, or if you add liability or equity, those transactions are credits.

QuickBooks

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. Use the general ledger report in QuickBooks to see a complete list of transactions from all accounts within a date range.

• Therefore, the following is the journal and ledger that you need to record into books for such a transaction.
• Also known as an accounting ledger, the general ledger serves as the record for a business’s financial data.
• Use this simple general ledger template to gain insight into your business’s financial data and debit and credit accounting records.
• This is because you can easily verify if various accounting items are classified and recorded accurately with the help of the given information.

These sources help you to verify that the amounts recorded in the Ledger accounts are accurate. However, reconciling individual account balances becomes extremely easy with online accounting software like QuickBooks. Likewise, the revenue and expense accounts give an accurate view of the incomes earned or the expenses incurred. Thus, these details come in handy as you do not have to look for invoices or bank statements at the time of filing tax returns.

Control Accounts

Once the Journal is complete, these transactions are then posted to individual accounts contained in General Ledger. However, the number of debit and credit accounts does not have to be equal, as long as the trial balance is even. For example, you may have 10 payments listed on the credits side to pay for supplies but only two sales (listed in the debits side). It is a type of general ledger where accounts of confidential nature are recorded.

It functions as the repository of all financial transactions and is used to prepare a number of reports, including balance sheets and income statements. Furthermore, one of the most notable functions of the nominal ledger is to perform bank reconciliation. This is the process of checking whether a company’s bank transactions match its accounting records.

The income statement will also account for other expenses, such as selling, general and administrative expenses, depreciation, interest, and income taxes. The difference between these inflows and outflows is the company’s net income for the reporting period. Lastly we have the amount of the transaction and the balance in the account.

What the General Ledger Can Tell You About Your Business

For instance, when doing their own books, many business owners assign revenue sub-ledgers numbers starting at 100 and expense sub-ledgers codes starting at 200. If the assets you have recorded don’t equal the value of your equity plus liabilities, your account balances don’t match and need to be corrected. An accurate ledger is also a good safeguard against issues like embezzlement and fraud.