General Ledger

What Is a General Ledger?

A general ledger is the central book of accounts in a business's double-entry bookkeeping system. Every financial transaction the company records, such as a sale, a purchase, a loan payment or a payroll run, eventually appears here. Each entry is grouped under an account, such as cash, accounts receivable, inventory, revenue or rent expense, so that the balance of each account can be seen at a glance.

The general ledger is often described as the "book of final entry." Transactions are first recorded in journal entries or subsidiary ledgers, such as those for customers or vendors, and then posted to the general ledger. Because it summarizes activity across the whole business, it serves as the source for the trial balance and, from there, the main financial statements.

How It Works

Each account in the ledger carries a running balance. When a transaction is posted, it is recorded as a debit or a credit to one or more accounts. Debits and credits must always balance, so the total of all debits equals the total of all credits. This built-in check helps catch recording errors.

Accounts are commonly grouped by type: assets, liabilities, equity, revenue and expenses. The general ledger's account balances then feed into the balance sheet, the income statement and the statement of cash flows.

Why It Matters to Investors

Investors rarely see the general ledger itself, since it is an internal record. However, the figures in a company's public financial statements come from it. Understanding that link helps explain how a reported number is built up from individual transactions. Reviewing the audit trail and the controls around the ledger is one way auditors check that reported figures are reliable.