What is a general ledger?

Definition

A general ledger is the master book of every account after postings have landed. It is not one journal line, and it is not a statement by itself.

Every asset, liability, equity, revenue, and expense account lives there. The statements are a view of those same accounts at a date or over a period.

Where it shows up

Balance Sheet: Related to every account that appears on the statements.

P&L: Related to every income and expense account.

Cash flow: Related to the cash account those postings feed.

See also: Chart Of Accounts · Journal Entry · Trial Balance

When you look at the Balance Sheet, every asset, liability, and equity line comes from a ledger account. Cash, accounts receivable, and accounts payable are three of those accounts.

The Income Statement is the same book for income and expense. Bread sales and rent are ledger accounts too.

The Statement of Cash Flows is fed by the cash account in that same ledger. It is not a second set of books.

If you open the software, the ledger is the list of accounts and the activity inside each one. A trial listing of ending balances is only a check that the debits still equal the credits.

How it works

A transaction starts as a dated journal entry. Equal debits and credits are posted into the named accounts.

Posting is what moves the journal into the ledger. After posting, each account's balance is the running total of its debits and credits.

Detail often lives one level down. Accounts receivable, accounts payable, and fixed assets may each have a detail list whose total must equal the control account in the ledger.

A bank reconciliation proves the cash account to the bank statement. That proof is how you trust the cash line on the Balance Sheet.

You do not post around the ledger. If a sale is missing from the ledger, it is missing from the statements.

Closing a period dates or locks the postings. Later readers should see the same account totals that the statements used.

An invoice to a cafe hits accounts receivable and revenue in this same book. A vendor bill from the bakery hits accounts payable and bread expense in the same book.

The allowed names and numbers sit on a separate list. The ledger is the activity inside those names, not the list itself.

If a debit and a credit do not match, the ledger is out of balance. No statement built from that book can be trusted until the two sides agree.

Example

Maya's florist keeps cash, accounts receivable, accounts payable, bread sales, and rent in one ledger. That list is her complete set of accounts.

A cafe buys $400 of flowers on account. She posts a debit to accounts receivable $400 and a credit to sales $400.

The ledger now shows $400 more receivable and $400 more sales. The Balance Sheet and the Income Statement both move because those accounts live in the same book.

When the cafe pays, she posts a debit to cash $400 and a credit to accounts receivable $400. Cash is up, the receivable is cleared, and sales do not move again.

At month end she lists every account balance. If the debit total equals the credit total, the ledger is in balance even if a single account is still wrong.

If she later finds a $50 rent bill that never posted, the ledger was balanced and incomplete. She posts the missing bill so rent expense and accounts payable both rise $50.

Common mix-ups

The general ledger is not one journal. A journal is a dated posting of equal debits and credits.

The ledger is where those postings land. You read the journal for the event, and the ledger for the account.

The general ledger is not the chart of accounts. The chart is the allowed list of account names and numbers.

The ledger holds the activity and the balances. The chart is only the list.

The general ledger is not a subledger. A subledger is the detail behind one control account, such as each cafe invoice behind receivables.

The ledger shows the control total. The detail list must add to that total.

Related terms

• Chart Of Accounts: The organized list of every account used to record transactions.
• Journal Entry: A dated record of debits and credits posted to the ledger.
• Subledger: A detailed ledger behind a single control account, such as receivables or fixed assets.
• Trial Balance: A listing of every ledger account balance, used to check that debits equal credits.
• Posting: Recording a journal entry into the general ledger accounts.
• Account Reconciliation: Proving that a ledger balance agrees to independent support.
• Audit Trail: The traceable chain from a reported number back to its source document.
• Double-Entry Bookkeeping: The method in which every transaction hits at least two accounts and stays in balance.