Ledger 101: Accounting Ledger Basics, Questions, and Use

Reading Time: 5 minutes

The General Ledger can be a mystery for business owners without a background in finance and accounting, or who are running small businesses. Let’s walk through the basics.

Ledger Basics

When it comes to the general ledger and accounting, many business owners aren’t sure whether they need one, how it differs from an accounting balance sheet, and what journal entries are. We have a simple breakdown of the absolute basics below.

Remember, this is a basic overview. CPAs who manage ledgers are tested and certified in this area of accounting, and while this general information is helpful, ledger management requires expertise, certification, and an adherence to accounting best practices. We hope you’ll consider trusting a Certified Public Accountant for your ledger needs.

What is a ledger?

When it comes to accounting, a ledger is a book and/or digital book that records transactions for different accounts. You might also hear this called a principal book of accounts, general ledger, sales ledger, purchase ledger. Your company may have one ledger or multiple ledgers, with entries that range from cash and accounts receivable to inventory and accrued expenses.

What is a general ledger?

In bookkeeping, a general ledger is the main document where you’ll find a record of all of your business activities. It’s the main record that summarizes and records activity across all of a company’s financial accounts. This is typically part of your accounting software or a separate spreadsheet, and covers…

  • Revenue
  • Expenses
  • Equity
  • Assets
  • Liabilities

Each of these areas will also have subcategories for other accounts, like inventory, equipment depreciation, petty cash, sales discounts, freight, and many others.

How is the ledger organized?

In bookkeeping and accounting, the general ledger is organized by account, and then chronologically. It can include a combination of columns like…

  • Account Number
  • Account Name
  • Date
  • Description
  • Debit
  • Credit
  • Balance

You will typically specify each entry with the account name and number.

Ledger entry meaning: what exactly is a ledger entry?

A ledger entry is a single record of any sort of business transaction.

Example: A client sends in a check for $1,300 for services rendered.

For this record, your accountant or bookkeeper will create an entry outlining the amount, the date, and increase the balance column by $1,300, and deduct $1,300 from accounts receivable balance.

What are general ledger journal entries?

A journal entry is created any time your business makes a transaction, so that it can be recorded in your books. Your journal is a sequential list of all business transactions, line itemed to include information like date, account name, amount, and a general description of the transactions.

Journal entries help you stay organized.

General ledger vs. subledger

The key difference between a general ledger and a subledger is that the general ledger is your master, meaning it holds information on all accounts, while a subledger can be used for a collection of subaccounts.

Example:

  • General Ledger
    • Assets Subledger
      • Equipment
      • Property
      • Cash on Hand
    • Purchase Ledger
      • Inventory
      • Suppliers
      • Sales Tax

A subledger is also sometimes called a subsidiary ledger.

Common Questions About Ledger Use

Now that you know a little bit about what a ledger is and how it works, let’s dive into some common questions.

Should my ledger be digital, handwritten, or both?

Accounting best practices dictate that you should use accounting software for your ledger. However, some businesses will elect to maintain a handwritten ledger as well, partly because it was the way of accounting for so long, and partly as a backup. However, one key thing to remember is that the more times you have to manually input the same data, the more opportunity you are creating for error.

Your best option is to use an accounting software that has built-in functioning for double entry accounting.

What are some common ledger accounts?

Most general ledger accounts fall under a few key categories: assets, liabilities, equity, expenses, and revenue.

Ledger accounts can include:

  • Accounts Receivable
  • Accounts Payable
  • Sales, Income, and Revenue
  • Interest Income
  • Dividends
  • Cash on Hand
  • Inventory
  • Debt
  • Expenses
  • Depreciation
  • Taxes
  • and truly so much more.

The type of accounts that will appear in your ledger will depend on the type of business you run (i.e. service-driven vs. product-driven), the scale of your company, and your operating processes.

How does a general ledger work with double entry accounting?

Double entry accounting is a practice that views each transaction as having two sides. Those two sides are typically considered a credit and a debit, which impacts an asset sheet and liabilities sheet (there’s much more detail that goes into it, but this is a simple starting point).

In double entry accounting, for every transaction a debit and credit is made from each account, which is then reflected in your general ledger.

General ledger to trial balance

A trial balance is the current final balance of each account. While your ledger will be pages and pages long, the trial balance is simply the totals for each account. A trial balance lists the closing balance from your ledger accounts (shown as either a credit or a debit).

Your trial balance is usually calculated at the end of an accounting period (commonly monthly, quarterly, and yearly). This helps your company understand whether you are operating at a positive or negative.

Accounting balance sheet vs. general ledger

While they contain similar information, an accounting balance sheet and a general ledger are very different. While a general ledger includes detailed history for all accounts and a running record of transactions, an accounting balance sheet offers less detail and is used to show what a company owns and owes.

An accounting balance sheet is useful for things like loan approval, and does not have as much detail, nor is it divided into multiple pages. It can be useful to show to potential investors, suppliers, government agencies, and creditors, and can be used for forecasting.

While they are different, both are incredibly important for your business.

What is a GL report (General Ledger Report)?

A General Ledger Report (commonly called a GL Report), includes account summaries, transaction details, and activity history for all of your accounts. The GL Report will list account numbers, transaction information, date, amounts, details, and notes.

This report can often be generated and customized in your accounting software.

Who is responsible for keeping the ledger?

This depends on the details of your company. Large companies may employ a General Ledger Manager or team of Ledger Managers to monitor and upkeep the ledger. For mid-sized companies with in-house accounting teams, this typically falls under the role of a bookkeeper or accountant. For small and many mid-sized businesses, an outsourced CPA or bookkeeping team is hired to manage the ledger and ensure the following of best practices.

Putting it to Use

Now that you know a little bit about how ledgers work, you’re ready to take action.

What is the best accounting software for general ledgers?

There are an overwhelming number of options when it comes to accounting softwares that include general ledger, ranging from Oracle’s NetSuit which is used by large firms to Xero, which is used by sole proprietors.

Quickbooks is considered the standard by many accountants, but there are literally hundreds of options for accounting software.

Where can I find a bookkeeping ledger templates?

There are many bookkeeping ledger templates and examples floating around the internet, however, it’s important to remember that many of these are simplified, may not be applicable to the financial structure of your business, and they can lead you into the error-prone activity of DIY bookkeeping.

Rather than looking for a template, we recommend speaking with your CPA, or consulting with a bookkeeping firm to get your ledger set up and running accurately from the get-go. We often get asked about Bookkeeping Cleanups, even from companies using Quickbooks.

This is too complicated. Where can I find a bookkeeper?

If you’re overwhelmed, don’t worry! Luckily, there are many qualified bookkeepers and Certified Public Accountants who offer ledger management as part of their services. You can learn more about our services here: Accounting and Bookkeeping Services, and our leadership staff.

Be sure to check reviews and select an accountant who is competent, offers the services you need, and you are comfortable working with.

Facebook
Twitter
LinkedIn
Sign Up For Our Weekly Newsletter
*Email
AKIF CPA
5.0
Based on 107 reviews
powered by Google
Annie Phillips
Annie Phillips
12:35 10 Oct 21
Turn around time was amazing on the project I needed done. When you don’t understand all the different forms... communication is key and you will get that here. They are there to explain what and why you need it.read more
Meru Kapadia
Meru Kapadia
23:33 01 Oct 21
I usually don't write reviews much as everyone has different experiences, but definitely wanted to share the positive... experience I have had here and why I would recommend them to all my family, friends and co-workers.I got a referral for here from a friend, so thought of giving them a try over my old CPA firm. I have been going here for a couple years now and have to say they are top notch. They are always responsive and willing to work with me even when I am delayed. I generally like to ask a lot of questions and not once did I feel like they were annoyed by it and would very thoroughly and positively answer all my concerns with detail explanations. Even during the pandemic, they worked with me 100% virtual and it was seamless. Overall, I am very happy with this firm and will continue with them for the foreseeable future.read more
Kevan Shah
Kevan Shah
21:45 01 Oct 21
I’ve been going to them for 3 years now for multiple of my businesses. I changed to them after I had problems with my... previous CPA firm and I’m so glad I did! Best decision I ever made for my businesses. They have saved me thousands of dollars over the years as well as deal with my immensely complicated tax filling issues. No matter when I call, they always help answer all my questions (and trust me I have a lot) and put my mind at ease on all my concerns. I feel as if I am family the way they take care of me. The quality of their work has not changed; very consistent and professional. It is an understatement when I say I highly recommend them.read more
Maunil Shah
Maunil Shah
16:19 01 Oct 21
AKIF CPA is the best place for your tax needs! Saim has been easily available for my all my questions and concerns. ... Couldn’t ask for a better firm that provides excellent service and a familiarity with their clients. I always recommend family and friends to AKIF CPA!!read more
Shah Hussain
Shah Hussain
03:58 01 Oct 21
Hello AKIF CPA,I wanted to share my experience with you, your team and whomever may be reading this message. My most... humble thanks to you and your team for a being such great part of my success.You have done a fabulous job for us this year, and since you took over our books (during our most devastating times) you have literally taken weight off of our shoulders.Thanks for bringing everything up to date and also providing us with numbers or as you call it consultations, ahead of time so we could seal the holes.Great work!!!Shah H.read more
Sumit Dalwadi
Sumit Dalwadi
04:57 30 Sep 21
The professionals at Akif have been absolutely amazing! Quick to answer all the questions I had and always available... to offer their guidance.read more
Calvin R
Calvin R
20:21 29 Sep 21
I recommend these guys! I will be going back next year. They made everything simple and we understood what was... happening. There we issues with our taxes due to our previous accountant and these guys fixed everything. They answered our questions and service was always with a smile.read more
Ammoria Daniels
Ammoria Daniels
02:11 16 Sep 21
We contacted Akif with an urgent matter regarding corporate taxes. Akif immediately understood what was needed and... within days had everything ready to sign. The level of service we received was amazing and unmatched. Waqar expertise in trucking industry made our situation seamless. His communication was outstanding; I heard from him daily and could have been completed sooner if I was as fast as he was 😃 Highly recommended!read more
Joe Paneitz
Joe Paneitz
18:30 18 Aug 21
What an absolute pleasure to work with this CPA firm. My business is already seeing such a positive impact and growth.... I cannot believe I didn't connect with them sooner. This firm is helping in so many ways! 5 stars is an understatement! Thank you so much for your help AKIF CPAread more
Helptest ARCpoint Labs
Helptest ARCpoint Labs
15:02 18 Aug 21
The firm is quick, responsive, and has the latest technological software. Thus far, I have been with them for 3+ years... and will continue to work with them even after relocating. They make it easy even when I'm miles away. Would highly recommend them.read more
Luz Tipaz
Luz Tipaz
16:06 13 Jul 21
Saim and his team are the best CPAs in town. I have been their client for years. All started when I needed help with... company structure with multiple companies and then accounting and Taxes. I have been very happy ever since. Thank you AKIF CPA.read more
Maria perez
Maria perez
18:31 08 Jun 21
Me and my husband have been getting all of our personal Taxes, business Taxes, monthly bookkeeping, accounting and... payroll done with AKIF CPA. Recently, we had more stuff come up and had detailed analysis done on capital gains, single family rentals (SFR) and business disposition. You will only know how great this CPA company is until you have worked with them and given them a chance. Words can’t describe our experience. AKIF CPA gets the job done every time - very reliable, professional and affordable.read more
Afnaan Amin
Afnaan Amin
22:14 02 Jun 21
Very good experience, we had unique situation in regards to cross border income as Canadians currently residing in the... US. Income on both sides of the border through completely different channels. Everything was very easy and completed timely, I also had lots of random questions and Mohammad provided top notch service along the way and even after we finished our taxes!! Highly recommended.read more
Ryan Paton
Ryan Paton
10:56 08 May 21
I moved to the USA from Canada late 2018 as part of a promotion/relocation for work. For my 2019 returns, I used an... accounting firm recommended by the local Canadian social club in my city, which was a terrible experience. They were slow to respond to inquiries and would follow up in piecemeal requests which dragged out my return process over several months, often asking for information I had already provided.For the price I paid, I vowed to find better service. I found Mohammad online and decided to reach out. Mohammad was extremely responsive, took care of my US and Canadian returns as well as my wife's business returns in a timely manner. Overall, it was a very positive experience and I would recommend him to another in my situation.read more
Tuan Vo
Tuan Vo
01:59 20 Apr 21
I relocated to Texas from Alberta, Canada and needed a CPA to help me with my cross-border taxes as I was not happy... with the CPA that I used previously. During my interviewing process to find another CPA, I had good feedback from Mohammad as he was able to answer my questions regarding my unique tax situation with expertise, and importantly to me, in a timely manner. I decided to use his services for the current tax year and I have nothing but compliments for the work Mohammad provided. If you are in need of a professional cross-border CPA, I highly recommend reaching out to Mohammad Akif.read more
See All Reviews
js_loader
Archives

Crypto Tax & Accounting Newsletter Signup

*Email

Cross-Border Tax Newsletter Signup

*Email