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What is a General Ledger?

Posted by Dave Clarke on August 15, 2014 at 10:00 AM

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When someone asks, "What is a general ledger?" images of giant dusty books are usually what come to mind. Surely, those aren't relevant to today's accounting, right? Well while the big ol' books aren't really the way things are done anymore, a general ledger is an important part of a business' accounting system.

In the simplest terms a general ledger is a complete record of all the financial transactions of your company throughout its life. The general ledger holds all of the information needed to prepare financial statements and includes assets, liabilities, equity, revenue and expenses.

We’ve previously talked about lots of pieces of the accounting pie: accounts payable, accounts receivable, etc. Each of these is a journal that keeps a portion of a company's complete financial picture. The general ledger takes monthly summaries of all these journals to create one "big picture" financial document. And it’s from the general ledger that all of the financial reports are generated: things like your P&L statement and your balance sheet.

Before the dawn of software for accounting, the general ledger could help you check for mistakes and ensure that each of your journals were correct, and thus, that you financial statements were correct and reliable too. If you’re keeping all your books by hand on physical paper a general ledger is a must.

But, since life is so amazing now and we have awesome online accounting software (*looks at self*), your GL is a little easier to manage. As long as you’re inputting each transaction (a debt or credit, cash or otherwise) then the software handles the general ledger portion, double checks your work and can generate almost any report you need! No more transferring numbers from journals to ledger to reports!

So to answer the question, "Do I need a general ledger for my business?", the short answer is yes. But the good news is that it doesn't require much extra effort on your end if you're using accounting software.

Topics: Accounting Basics