What is a ledger?

Ledger (definition)

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.

A general ledger diagram showing the five account types and the two financial reports they feed into.

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

A general ledger table showing the total of credit and debit transactions for each account and net movement.

The general ledger summarises the credit and debit transactions for each account.

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Disclaimer: This glossary is for small business owners. The definitions are written with their requirements in mind. More detailed definitions can be found in accounting textbooks or from an accounting professional. Xero does not provide accounting, tax, business or legal advice.