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  • What is a General Ledger?

    What is a General Ledger?

    All financial transactions occurring in the day to day operations of a business are tracked by the business’ accounting department and recorded to provide the business owners an accurate assessment of the financial performance of the company. Transactions are recorded by the company in books called journals that are summarized on a monthly basis, and then the totals are posted to the company’s General Ledger. A General Ledger is a mandatory component of any business’ accounting system as it is a historical record summarizing all of the financial balances of a business. To keep this explanation simple, we will avoid using terms such as debit and credit and will assume that all of the business’ transactions are directly recorded into the company’s General Ledger (vs. being initially recorded in a journal and then summarized in the journal prior to posting in the General Ledger). To easily understand how a General Ledger is used, it can be explained in a visual sense by looking at a non-computerized, i.e. manual accounting system. Picture a big book. That book contains several lined pages. Each lined page is assigned to each account of the business and is labeled as such with the name of the account at the top of the page. Each line on the page would then be filled with the individual financial transactions that have occurred for that particular account. The lines of the page are then totaled together to determine the balance in that particular account as of a certain date. The cumulative balances of the profit and loss type accounts are then added together to determine the business’ profit or loss through a certain date.