The trial balance is checked for errors and adjusted by posting additional necessary entries, and then the adjusted trial balance is used to generate the financial statements. Journal entries are recorded in chronological order, making it easy to identify the transactions for a given business day, week, or another billing period. By contrast, entries in a ledger might group like transactions into specific accounts to assess the data for internal financial and accounting purposes.

You may choose to conduct an internal audit or get your accounts audited by an accounting professional. Therefore, General Ledger acts as an important financial record that is audited whatever may be the case. Furthermore, you can refer back to the details with regards to the sales made in case you need to do so in the future. Likewise, Sales Ledger also helps you to keep track of payments received and yet to be received from your customers. This equation states that the assets of your business are always equal to the sum of the owner’s capital and the claims of the outsiders.

A subsidiary ledger (sub-ledger) works as a secondary set of books when a company has a subsidiary (another company owned by the first). The idea is to simplify the primary general ledger for the parent company by having a separate set of books for the owned (subsidiary) company. Think of it as a book within a book, sort of like an anthology of stories. Then, the subsidiary ledger data is entered into the general ledger under its control account. Purchase ledgers record the monies owed and paid to a company’s suppliers. In accounting software, it often calls this ledger accounts payable or supplier accounts.

  • You need to record various business transactions in your books of accounts based on the dual aspect of accounting.
  • If the accounting equation is not in balance, there may be a mistake in your journal entry.
  • Transactions from subsidiary ledgers are periodically summarized and transferred to the general ledger, which contains transaction data for all accounts in the chart of accounts.

A purchase ledger is used to keep track of all the purchases made by a business. This may include parts, supplies, equipment, and inventory for their products. Originally, ledgers were created to track financial assets like currencies, stocks, and bonds. But now they can be used for any type of data including identity verification, smart contracts, and more.

Types of General Ledger Accounts

After the accounts are categorized by type, they are arranged in balance sheet order starting with assets, then liabilities, then equity accounts. It includes the transaction date, particulars of the transaction, folio number, debit amount, and credit amount. The ledger might be a written record if the company does its accounting by hand or electronic records when it uses accounting software. According to CPA Practice Advisor, only 18% of small- to medium-sized businesses do not use accounting software.

  • Further, these are the obligations that you have to fulfill for the amounts you have borrowed and which have not yet been paid for.
  • Originally, ledgers were created to track financial assets like currencies, stocks, and bonds.
  • 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.
  • In that case, individual transactions are recorded in sub-ledgers and the totals are then transferred to an account within the general ledger.

Sales Ledger or Debtors Ledger is one of the three types of Ledgers that you prepare as a firm or a business entity. It records all the transactions that take place between you and your debtors. Here, debtors are nothing but the business entities to whom you have sold goods that you manufacture.

What Is an Accounting Ledger?

Thus, each transaction of your business takes place in such a way that this equality between the two sides of the accounting equation is always maintained. That is, at any point in time, the resources or the assets of your business must equate to the claims of owners and outsiders. Say you own a publishing house Martin & Co. and purchased 20 kg paper on cash at $20 per kg on December 1, 2020.

A general ledger is the foundation of a system employed by accountants to store and organize financial data used to create the firm’s financial statements. Transactions are posted to individual sub-ledger accounts, as defined by the company’s chart of accounts. So, General Ledger contains information related to different accounts. These accounts provide information that helps you in preparing your business’ financial statements. These financial statements include the income statement and balance sheet.

What is your current financial priority?

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. For balance sheet accounts, the opening balance is usually the closing balance from the previous period.


You can prepare financial statements once you have verified the accuracy of your ledger accounts. This is because the software comes with a Bank what is a check register Reconciliation feature. This feature automatically matches the transactions recorded in your books of accounts with the bank statement balances.

This ledger is used to record each transaction and uses a trial balance to validate the information. A ledger (also called a general ledger, accounting ledger, or financial ledger) is a record-keeping system for a company’s financial transaction data. A ledger is a central source of truth, between all financial data sources and destinations. Ledgers can exist as physical books, if a company’s accounting is done by-hand, or, more commonly, exist as digital records.

The stockholder’s equity refers to the excess of assets over liabilities of your business. In other words, these are the assets remaining after you pay off all the debts and the liabilities. Accordingly, you do not record details of each sales transaction undertaken with various customers in the Accounts Receivable Control Account. Here, a Subsidiary Ledger is a ledger recording detailed information of the related Control Account. Accounts Receivable is most commonly used as a General Ledger Control Account. This is because you can easily verify if various accounting items are classified and recorded accurately with the help of the given information.

So, liabilities can be further divided into current liabilities and non-current liabilities. With the help of ledgers, users can gain a better idea of what is going on inside their company so they may make more informed decisions and effectively manage their finances. When a business owner notices a sudden rise in expenses, they can investigate the general ledger to determine the cause of the increase. If there are accounting errors, an accountant can dig into the general ledger and fix them with an adjusting entry. A ledger can help you keep track of your finances and make sure that your money is going where it needs to go.

Whereas, the income statement accounts like operating, non-operating income and expenses start afresh in every accounting period. That is, these accounts must have a NIL balance at the beginning of the accounting period. However, they can provide users with more insight into their financial transactions which may give them the ability to make better decisions as managers or owners of a business. An accounting journal is filled with individual entries that record the transactions of a business’s accounts.

Sometimes it is information deemed embarrassing, and sometimes it is simply information that the company wants to keep out of the hands of competitors for a set amount of time. It is the most important book of accounting as it helps in the creation of trial balance which then acts as a base for the preparation of financial statements. Using a ledger, you can maintain an accurate record of your business’s financial transactions, generate financial reports, and monitor business results. Both the accounting journal and ledger play essential roles in the accounting process.