General ledger basics: A guide for small businesses

Published Tuesday 6 October 2026

Table of contents

• What is a general ledger?
• General ledger accounts
• How to do a general ledger
• General ledger accounting
• How to create a trial balance
• How to create financial reports with the general ledger
• Automate your general ledger with Xero
• FAQs on general ledger basics

Key takeaways

• The general ledger records all of a business’s financial transactions. It’s the foundation of double-entry accounting.
• The general ledger sorts transactions by their accounts into subledger accounts.
• After you make a journal entry, make a corresponding entry in the ledger.
• The ledger helps you find mistakes, and its account totals feed your profit and loss statement and balance sheet.

What is a general ledger?

A general ledger in accounting is a record of a company’s past financial transactions. It shows the date, amount, and details of each transaction, and it organizes all the transactions into accounts. The general ledger includes all the info you need to generate financial reports, like balance sheets and profit and loss statements.

In the past, the general accounting ledger was a physical book. Now, accounting software (like Xero) creates it in the background as you enter transactions.

The US Small Business Administration (SBA) has more info on managing business finances.

General ledger accounts

The general ledger includes all the accounts (called subledgers or subsidiary ledger accounts) in your chart of accounts. The accounts fall into the following categories:

• Income
• Expenses
• Assets
• Liabilities
• Equity

There may be just one or two accounts in each category, or dozens. For instance, your business could have subledger accounts like these:

• Income accounts for sales, interest on savings accounts, and gains on stocks
• Expense accounts for rent, utilities, and wages
• Asset accounts for inventory, equipment, real estate, and cash
• Liability accounts for credit cards, bank loans, and accounts payable
• Equity accounts for owner’s equity, shareholders’ equity, and owners’ draws

Depending on the complexity of your business, your ledger accounts can be broken down even further. For instance, you might have Amex, Chase, and Bank of America accounts as subcategories of your credit card liabilities.

In the past, to see a subledger account, you flipped to the part of the general ledger that contained the subaccount. For instance, if you wanted to see the transactions in your utilities account, you’d go to that page of the general ledger.

Now, you click on the name of the account in various places of the software, and that takes you to the ledger for that account.

How to do a general ledger

First, you note the transaction in the journal, and then you note it in the general ledger. Every transaction requires two entries in both the journal and the ledger, which is why this part of bookkeeping is called double-entry.

Here’s an example. Say you buy a laptop for $1,000 using your Amex credit card, so you make a journal entry to record the purchase.

The Amex company then sends you a bill with interest a few weeks later, so you record the interest due. Two weeks later, you pay off the debt with money from your bank account.

Then, you transfer these numbers to the relevant general ledger accounts. Each account is labeled as an income, expense, asset, liability, or equity account. You’ll find every entry for this example written out in the next section.

If you’re doing things the traditional way, you record all of this in a physical book. You can still find ledger books in office supply stores. Give each ledger its own page or section, then note the page at the front of the book or add a tab so you can find the account.

You can also use digital spreadsheets with separate pages or columns for each subledger account. Or if you’re using accounting software, you can simply enter the transaction into the software and it creates the ledger as you go along.

The SBA small business guide has more advice for running your small business.

To practice with your own numbers, download this general ledger template, a spreadsheet with tabs for your chart of accounts, ledger, and trial balance.

General ledger accounting

General ledger accounting is the process of recording every transaction in the right accounts, then checking that total debits equal total credits. It turns your day-to-day entries into the account totals behind your financial statements.

How double-entry works in the general ledger

In double-entry bookkeeping, every transaction affects at least two accounts. One account gets a debit, another gets a credit, and total debits always equal total credits.

Think of it like moving money between two jars: whatever leaves one jar lands in another, so your books stay in balance. Each account type has a normal balance, which tells you whether a debit or a credit increases it.

Assets and expenses increase with debits. Liabilities, equity, and income increase with credits. For a closer look at how each side works, read up on debits and credits.

Example journal entries

Here’s the laptop example written out as journal entries. The amounts are illustrative, so swap in your own numbers when you record real transactions.

1. You buy a $1,000 laptop on your Amex card, so you debit equipment (an asset) $1,000 and credit Amex credit card (a liability) $1,000.
2. Amex charges $20 in interest, so you debit interest expense $20 and credit Amex credit card $20.
3. You pay the card in full from your bank account, so you debit Amex credit card $1,020 and credit checking account $1,020.

The Amex account now shows $1,020 in credits and $1,020 in debits, so its balance nets to $0. Each entry balances on its own, which is why the trial balance in the next section balances too.

How the general ledger rolls up into the financial statements

Your numbers move through the accounting cycle in a set order. Each stage builds on the one before it:

1. Record each transaction in the journal.
2. Post the entries to your general ledger accounts.
3. Total the accounts in a trial balance.
4. Adjust for accruals and deferrals to get an adjusted trial balance.
5. Create your financial statements from the adjusted totals.

Income and expense account totals feed the profit and loss statement. Asset, liability, and equity totals feed the balance sheet.

Net income from the profit and loss statement flows into equity through retained earnings. That’s what links the two statements: the profit you keep in the business increases the equity on your balance sheet.

Why general ledger accounting matters

General ledger accounting helps you find and fix mistakes before they reach your reports. When you total your ledger accounts and the debits don’t match the credits, you know to go back to the journal.

Look for a transaction you missed, a wrong number, or a credit recorded as a debit. Once the totals balance, you have accurate numbers for your financial reports.

How to create a trial balance

Now, use the example journal entries above to create a trial balance. To do that, note the total of each account and whether it’s a debit or a credit.

The Amex account nets to $0, so you can leave it out. That leaves debits of $1,000 for equipment and $20 for interest expense, plus a $1,020 credit to your checking account.

In this example, the debits match the credits, so you’re ready to move on. If they didn’t match, you’d look back at your records to find the error.

If you use cash accounting, where you record transactions as they occur, you’re ready to generate financial reports from this info. If you use accrual accounting, where you record transactions when they’re agreed upon, you’ll need to adjust for accruals and deferrals:

• Accruals include income that’s been earned but not received, and expenses that have been incurred but not paid.
• Deferrals are the opposite: they include revenue that’s been received but not earned, and expenses that have been paid but not incurred.

Once you have the adjusted trial balance, you can create financial statements. Here’s more on the differences between cash and accrual accounting.

How to create financial reports with the general ledger

You can create reports from your general ledger by hand, though it’s fairly advanced accounting. Accounting software like Xero makes it much easier, but if you’re curious about the process, here’s how to build the two most important financial reports.

Profit and loss

To create the profit and loss report, total the income and expense accounts from your general ledger and enter them into the report. Income goes at the top and expenses come next. Then, subtract the expenses from the income to calculate your profit.

Balance sheet

For the balance sheet, note the totals of all your asset, liability, and equity accounts. Assets go at the top, liabilities in the middle, and equity at the bottom.

Equity should equal your assets minus your liabilities. If it doesn’t, check your trial balance for errors.

Wondering which reports you need? The Internal Revenue Service (IRS) has tips on recordkeeping for small businesses.

Automate your general ledger with Xero

Spend less time on big books, spreadsheets, and manual accounting processes with Xero. Your general ledger builds itself as you enter transactions, so you make fewer manual entry errors.

You also get accurate, up-to-date financial reports from your latest data whenever you need them. Choose a plan and get one month free to see how easy your books can be.

FAQs on general ledger basics

These answers cover common questions about how the general ledger works.

Do I need a general ledger?

Yes: any business using double-entry accounting needs one, because it’s where your transactions get sorted into accounts. If you use accounting software, it keeps the ledger for you as you enter transactions.

What’s the difference between the general journal and the general ledger?

The general journal records every transaction in date order, while the general ledger sorts those same transactions by account. The journal shows what happened and when; the ledger shows the running balance of each account.

What’s the difference between the chart of accounts and the ledger accounts?

The chart of accounts is the list of accounts your business uses, and it sets which accounts appear in the ledger. The ledger accounts hold the actual transactions and balances for each account on that list.

Is general ledger accounting the same as bookkeeping?

Bookkeeping covers recording day-to-day transactions, while general ledger accounting organizes those records by account and checks that they balance. In accounting software, both happen at once when you enter a transaction.

Is a trial balance the same as a balance sheet?

No: a trial balance lists the totals for every account in your ledger, while a balance sheet only shows assets, liabilities, and equity. You use the corrected, adjusted trial balance to build the balance sheet.

When did accountants start using general ledgers?

Italian merchants were using double-entry bookkeeping by the 1300s, and Luca Pacioli described the method in a book published in 1494. Bookkeepers kept ledgers by hand for centuries; today, software builds them as you go.