General Ledgers: What Are They and Why They’re Important

Also known as an accounting ledger, the general ledger serves as the record for a business’s financial data. This ledger is used to record each transaction and uses a trial balance to validate the information. A complete list of all general ledger accounts that a company uses is contained within the chart of accounts, which is a simple listing of account numbers and account descriptions.

  • Therefore, your or your accountants go through each of the accounts individually if you prepare Journal and Ledger manually.
  • When you set up your general ledger, you must decide whether you’ll use the double-entry method or the single-entry method.
  • In fact, if you want to see how much money your current bank account holds, or why your printing expense account is so high, you would turn to your general ledger first.
  • QuickBooks’ intuitive accounting software helps provide a comprehensive audit trail.
  • 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.

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. 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 so it’s important to understand how they work together.

The next step after recording a transaction within a journal is to transfer it to the corresponding general ledger account. Posting into the general or subsidiary ledger will ensure that your accounting data is current. The general ledger contains all of the accounts currently being used in a chart of accounts, and is sorted by account number.

Control Accounts

Thus, the shareholder’s equity appears on the liability side of your company’s balance sheet after current and non-current liabilities. A Control Account is nothing but a General Ledger Account where you record only the summarized information regarding a specific account. Thus, you need to refer to a related subsidiary ledger to know the details of such a control account.

  • The next step after recording a transaction within a journal is to transfer it to the corresponding general ledger account.
  • “As transactions in your business occur, they are noted in the general ledger under each account using double-entry accounting.
  • Instead, they can be marked as a certain type of entry and called up in a search if you want to look at these entries on their own.
  • However, reconciling individual account balances becomes extremely easy with online accounting software like QuickBooks.
  • Thousands of years before the invention of Excel, over 5,000 years ago, the ancient Mesopotamians used general ledgers to record quantities on clay tablets.
  • Also, the accounting professional auditing your company accounts may ask for sales receipts, purchase invoices, etc.

As a document, the trial balance exists outside of your general ledger—but it is not a stand-alone financial report. Think of your general ledger as growing the wheat before you make the bread that is your financial statements. It provides bookkeepers with the information they need to generate any reports. When you record a financial transaction, it’s called a journal entry, because bookkeeping has always been done by hand, in journals. Sub-ledgers within each account provide details behind the entries documented in account ledgers, such as if they are debited or credited by cash, accounts payable, accounts receivable, etc. With journal corrections in mind, balances in the general leger are compared against financial data, such as bank statements.

Subledger vs General ledger

Accounts Receivable is most commonly used as a General Ledger Control Account. Furthermore, you can refer back to the details with regards to the sales made in case you need to do so in the future. Likewise, Sales Ledger also helps you to keep track of payments received and yet to be received from your customers. Now this journal entry would be transferred to respective Ledger Accounts in the following way. For example, if a company makes a sale, its revenue and cash increase by an equal amount. When a company borrows funds, the cash balance increases, and the debt (liability) balance increases by the same amount.

Expense accounts

This is done in order to minimize the transaction volume cluttering the general ledger. The accounts receivable and accounts payable accounts are the most likely to be control accounts. To correctly record an increase or decrease to an account within your business, you will need to use 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- a debit to an account and a corresponding credit to an account. By preparing a trial balance, you make sure your accounting is correct before creating financial statements for the accounting period in question.

What Is a General Ledger (GL)?

Therefore, a General Ledger helps you to know the ultimate result of all the transactions that take place with regards to specific accounts on a given date. Now that you understand what an accounting ledger is and how important it is to keep track of the finances of your small business, you’ll be able to organize and track transactions more easily. A sales ledger is a detailed list in chronological order of all sales made.

This is so because you do not want to understate expenses in your financial statements for the next 12 months. Hence, such an investigation helps you to avoid looking for errors later. Furthermore, such a comparison becomes a lot easier with accounting for research and development an online accounting software like QuickBooks. Thus, it forms the basis of your financial statements and helps you in evaluating the financial affairs of your firm. General Ledger is the second most important Book of Entry after the Journal.

This ledger can also be used to keep track of items that reduce the number of total sales, like returns and outstanding amounts still owed. If your business doesn’t make enough purchases to warrant keeping them in its own ledger, you can include them in your general ledger. Manage your client’s file end-to-end, or encourage them to get involved by signing in to connect their bank feeds, review their transactions, or view their reports. A reconciliation process for an accounting ledger is where each account is double-checked to ensure everything is accurate. Thousands of years before the invention of Excel, over 5,000 years ago, the ancient Mesopotamians used general ledgers to record quantities on clay tablets.

The Ascent is a Motley Fool service that rates and reviews essential products for your everyday money matters. After all, you can’t manage your expenses if you don’t know what they are. So, you can easily find transactions you are searching for in your General Ledger if you have a code for every transaction. Therefore, Ledger makes it easy for you to refer back to transactions in case you need to do so in the future. Therefore, a Purchase Ledger or a Creditors Ledger showcases the amount you pay to your suppliers or the amount yet to be paid for the purchases made.

Thus, you need to check the balances for balance sheet accounts like assets, liabilities, and stockholder’s equity. The postings to the control accounts are from the summary totals in the books of prime entry. The postings to the subledgers are from the individual detailed entries in the books of prime entry.

A trial balance is an internal report that lists each account name and balance documented within the general ledger. It provides a quick overview of which accounts have credit and debit balances to ensure that the general ledger is balanced faster than combing through every page of the general ledger. You can prepare financial statements once you have verified the accuracy of your ledger accounts. Some of these accounts are balance sheet accounts and some are income statement accounts. Further, the shareholder’s equity includes share capital, retained earnings, and treasury stock.

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