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What Is A General Ledger? Definition, Functions And Key Elements

what is a general ledger account

$500Overall the general ledger should always have the total amount of debits equal to the total amount of credits. No flash cards needed—just check out the list of terms we think business owners will want to know. When an account does not have a normal balance, brackets enclose the balance. Assets normally have debit balances, for example, so brackets enclose a checking account’s balance only when the account is overdrawn. The first digit of this seven-digit segment is earmarked to represent specific types of account strings. Are you a new small business owner looking to understand your tax return a little more? Here are the definitions of various types of income and how they related to your small business’s taxes.

Furniture account, salary account, debtor account, owner’s equity, etc., are some examples. ExpensesAn expense is a cost incurred in completing any transaction by an organization, leading to either revenue generation creation of the asset, change in liability, or raising capital. Debit BalanceIn a General Ledger, when the total credit entries are less than the total number of debit entries, it refers to a debit balance. A debit balance is a net amount often calculated as debit minus credit in the General Ledger after recording every transaction.


A general ledger is simply a master document containing all of a company’s transactions neatly categorized. Agencies/departments may expand the statewide uniform codes to lower-level accounts as necessary to accommodate agency/department-specific requirements.

Because we’re using double-entry accounting, the $500 debit needs to be complemented by a $500 credit. Also, both the Organization and Balancing segment values must match between the two account strings. Subaccount reflects a breakdown of the Account activity and is, therefore, dependent on the Account segment. The Account segment of the GL accounting key, along with its dependent Subaccount segment, uniquely identifies an active GL income statement account string. A general ledger sounds technical and complicated, but once you dive in you will see that it is nothing more than a methodical collection of very useful transactional data. With accurate financial statements as the prize, the return on investment here makes the effort well worth it.

No matter which accounting method you use for your business, keep this equation top of mind. It tells you everything you need to know about what healthy books look like. When you set up your general ledger, you must decide whether you’ll use the double-entry method or the single-entry method. The latter is less common and suited to smaller, simpler businesses without many monthly transactions. After subtracting credit balance from debit, the business will be left with a debit balance of $5000 cash. Accounting RulesAccounting rules are guidelines to follow for registering daily transactions in the entity book through the double-entry system.

It also facilitates bank reconciliation because all the bank related transactions are posted in one place. This ledger pertains to the income earned by the company either from the main business of the entity or from other sources. This includes income from sales, interest, discount received, dividend, investment . This information is educational, and is not an offer to sell or a solicitation of an offer to buy any security. This information is not a recommendation to buy, hold, or sell an investment or financial product, or take any action.


This table shows the recommended debit and credit accounts to use for each financial transaction type. As a general ledger example, imagine that your company received $300 as a cash payment from a client. You would record a debit in ‘cash’ and a credit in ‘accounts receivable’ in both the ledger and journal. What is the best way to catch fraudulent or erroneous bank transactions? Here’s a step-by-step guide to help you reconcile your balance sheet cash account to your bank statement. Debits increase asset and expense accounts and decrease liability and equity accounts.

  • General Ledger is the backbone for all the transactions in the organization.
  • It provides a complete record of financial activity over the whole life of a company.
  • Each asset must have a corresponding liability or equity balance.
  • For instance, a buyer pays cash in return for a purchased item while the seller gains cash for the sold item.
  • The owner, Matty, spent $500 on peppers, onions, sausage, and pepperoni.
  • Many companies opt to download software to quickly update the general ledger and to extract information from it into other related documents.

And then map the GL IDs you created to general ledger accounts for debits and credits. For each GL ID, select the add icon and then select one of your GL IDs. In event-based revenue recognition, standard GL IDs track all financial transactions in your system, including charges, discounts, tax codes, early termination fees, and AR actions. The Object Code categorizes the nature of dollars as a specific type of revenue, expense, asset, etc.

What Are The Primary Components Of A Trial Balance Sheet?

Suppose fictional Company XYZ wants to have a better understanding of its financial position, so it assembles a general ledger. Its general ledger shows information from different subledgers, cash, accounts receivable, accounts payable, inventory, investments, and fixed assets. Company XYZ’s accountants sum the assets, liabilities, and equity in the ledger to ensure its books are correctly balanced. If the books are balanced, Company XYZ can use the information in its general ledger to get a complete view of its financial situation.

what is a general ledger account

A company’s GL is the basis of its financial reporting and the source of the information used therein. Transactions are noted from a source document, such as an invoice or bill, and tracked in the general journal. Periodically, all transactions made within a company are posted to the general ledger. Since the GL is comprised of a company’s total financial accounts, it is instrumental in the preparation of key financial reporting documents such as the balance sheet and income statement. A general ledger contains accounts covering the assets and liabilities that make up a business’s activities. Typically, the accounts of the general ledger are sorted into five categories within a chart of accounts.

What Is Bpo Business Process Outsourcing?

Double-entry accounting uses debits and credits and dollar amounts. Every minute saved on making journal entries is time you can invest in your business. With Bench, powerful software automates your financial reporting by importing transaction information straight from your bank accounts and credit cards. Your dedicated bookkeeping team reviews every piece of information, guaranteeing accurate information you can use to make impactful business decisions.

General ledgers are master financial statements that record all the financial transactions of your business. When it comes to financial accounting and keeping every business transaction accounted for, the general ledger has no equal. Each journal entry has an account number, a date, an amount, and an entry description. Using accounting software like FreshBooks is a super-easy way to track all entries and maintain tight general ledger accounting records.

What Are Your Financial Statements Telling You?

Avoid capitalizing all letters in all accounts because that makes it hard to read. The good news is that most accounting programs let you change account descriptions easily. A description could be “Rent expense” if a business pays rent to one landlord.

However, the general ledger is such a central document that any small business owner can benefit from understanding its form and function. At Ignite Spot, we strive to keep our clients well informed about their outsourced accounting and bookkeeping. For a small business owner, understanding how general ledger accounting works can be very helpful. At the end of a specific period , an accountant will separate transaction data by type. That data comes from journals where daily transactions are recorded. The accountant closes out those accounts and summarizes them in a general ledger.

what is a general ledger account

The strength of this system is that by maintaining two columns for every account, all of the accounts can be checked for accuracy. Since it was first devised by a merchant in the 13th century, the double-entry system has been used worldwide by companies of all sizes. The chart of accounts is organized in a manner that is similar general ledger accounts examples to the general ledger. It is ordered sequentially and starts with balance sheet accounts and is then followed by the income statement accounts. This allows you to find an account’s name, its unique number, and typically a brief description. Unlike the general ledger, however, it does not list any balances or transactions.

More Accounting Topics

Enter a description of the account, such as Cash, Accounts Receivable, or Accounts Payable. Deliverables, which define when and how much revenue can be recognized by your company.

  • Debits to the account appear on the right, and credits to the account appear on the left.
  • Repeat this sequence of steps for every account listed in the journal entry.
  • The trial balance lists each general ledger account along with its balance.
  • But since bookkeeping by hand takes 1,000 times longer, most business owners and bookkeepers use accounting software to build their general ledgers.
  • At times this can involve reviewing dozens of journal entries, but it is imperative to maintain reliably error-free and credible company financial statements.
  • The first two digits of the Balancing segment indicate the internal functional grouping.

Intuit Inc. does not warrant that the material contained herein will continue to be accurate nor that it is completely free of errors when published. QuickBooks’ intuitive accounting software helps provide a comprehensive audit trail.

Both general journals and general ledgers use the concept of double-entry accounting. Entries made in the general journal usually have a short description to describe what happened. Regularly a company’s accountants or accounting software post transactions from the general journal to the general ledger. When they post transactions, the accountants assign the transactions to one of the accounts in the ledger.

Benefits Of General Ledger Accounting

On the ledger, each of the assets will have its own GL account. The trial balance is a report that lists every general ledger account and its balance, making adjustments easier to check and errors easier to locate.

It provides a complete record of financial activity over the whole life of a company. It holds account data that is required to prepare financial statements. Small businesses that don’t issue stock use an account called owner’s equity, instead of common stock. The owner’s equity is the total cash and other assets that owners contribute. Journal entry #1 indicates that inventory is debited by $10,000, and cash is credited by $10,000.

What Is A Trial Balance?

All companies have a specific set of accounts that they use to record transactions. The list of these accounts is most often called the chart of accounts.

Is an individual or organization that has a vested interest in a company and is impacted by the firm’s business decisions. Is like an IOU that’s issued by a company, government, or institution in exchange for cash, and it’s tradable in financial markets, similar to a stock. Perhaps the most significant difference between the general ledger and general journal is how you group transactions. In a general journal, you typically enter transactions in chronological order. Start with the first transaction, then the second, then the third, in the order until the final transaction in the journal.

You can use standard GL IDs in both event-based revenue recognition and deliverable-based revenue recognition. See About event-based revenue recognition and About deliverable-based revenue recognition.

Hire an accountant or bookkeeper, or learn how to set up the chart of accounts and classifications for your company’s accounting system. Generally, a transaction posts to the general journal before it makes its way to the general ledger. The general ledger is the second point of entry for recording transactions after it enters the accounting system through the general journal. The general ledger is a summary of every business transaction at the account level. Even when using codes, your records should still include a description of each transaction.

Double-entry transactions are posted in two columns, with debit entries on the left and credit entries on the right, and the total of all debit and credit postings are balanced. There are additional columns to the right which hold a running activity total. The general ledger also includes the date, description, balance or total amount for each account as well. The general ledger accounts are usually divided into seven main categories including assets, equity, revenue, liabilities, gains and losses. They may be subdivided into sub-ledgers for more details such as cash accounts, accounts receivable, accounts payable etc. In accounting, a general ledger is used to record all of a company’s transactions.

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