In accounting, a General Ledger (GL) is a record of all past transactions of a company, organized by accounts. General Ledger (GL) accounts contain all debit and credit transactions affecting them. In addition, they include detailed information about each transaction, such as the date, description, amount, and may also include some descriptive information on what the transaction was.
In accounting software, a general ledger sorts all transaction information through the accounts. Also, it is the primary source for generating the company’s trial balance and financial statements. The ledger’s accuracy is validated by a trial balance, which confirms that the sum of all debit accounts is equal to the sum of all credit accounts.
General ledger account
A general ledger account (GL account) is a primary component of a general ledger. A GL account records all transactions for that account. The transactions are related to various accounting elements, including assets, liabilities,equity, revenues, expenses, gains, and losses.
For example, cash and account receivables are part of the company’s assets. On the ledger, each of the assets will have its own GL account.
For a large organization, a general ledger can be extremely complicated. In order to simplify the audit of accounting records or the analysis of records by internal stakeholders, subsidiary ledgers can be created.
A subsidiary ledger (sub-ledger) is a sub-account related to a GL account that traces the transactions corresponding to a specific company, purchase, property, etc. If a GL account includes sub-ledgers, they are called controlling accounts.
For example, Companies X, Y, and Z are the clients of Company A. For accounting purposes, Company A may create three sub-ledger accounts corresponding to its three clients under account receivables (controlling accounts) to trace the amounts expected to be received from each client.
General Ledgers and Double-Entry Bookkeeping
A general ledger summarizes all the transactions entered through the double-entry bookkeeping method. Under this method, each transaction affects at least two accounts; one account is debited, while another is credited. The total debit amount must always be equal to the total credit amount.
Assets = Liabilities + Shareholder’s Equity is known as the Accounting Equation and is a mathematical representation of the double-entry system of accounting. The equation is broken down in CFI’s Accounting Fundamentals Course.
As a General Ledger (GL) records all of the transactions that affect a company’s accounting elements, such as Assets, Liabilities, Equity, Expenses, and Revenue, it is the data source used to construct the Balance Sheet and the Income Statement. The set of 3-financial statements is the backbone of accounting, as discussed in our Accounting Fundamentals Course.
Decentralized Ledger – Blockchain Technology
Blockchain technology has given rise to a decentralized or distributed ledger. Blockchain allows the ledger to be distributed across users worldwide, and each user is part of the entire network, making it less dependent on a single centralized node.
Therefore, everyone within the company network can access the ledger at any point and make a personal copy of the ledger, making it a self-regulated system. This mitigates the risks that Centralized General Ledgers have from having one source control the ledger. The image below is a great illustration of how the blockchain distributed ledger works.
Thank you for reading CFI’s guide to General Ledger. To continue learning and advancing your financial career, these additional CFI resources will be helpful:
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