What is a ledger?
A ledger, also called a general ledger, is a record of a business’s financial transactions. It summarises all the revenue and expenses of the business, plus the debts owed and assets owned.
The transactions in a general ledger are organised into five main types; assets, liabilities, equity, revenue, and expenses.
Transactions are entered into the correct account in order to produce the financial reports.
What is recorded in a general ledger
Assets – the value of things that the business owns, or part owns, eg, inventory
Liabilities – the amount of what the business owes, eg, bank loans
Equity – funds introduced into the business and drawings by the owner(s)
Revenue – money coming into the business through sales, interest or dividends
Expenses – money paid out to keep the business running, eg, rent
How a general ledger drives reporting
This information in a general ledger is used to produce a trial balance, balance sheet, profit and loss (P&L) statement, cash flow statement, and other financial reports. These reports reveal the financial health of a business.
General ledger example
The general ledger summarises the credit and debit transactions for each account.