What is a general ledger account?

Also, it is the primary source for generating the company’s trial balance and financial statements. The ledger’s accuracy is validated by a trial balance, which confirms that the sum of all debit accounts is equal to the sum of all credit accounts. The company’s bookkeeper records transactions throughout the year by posting debits and credits to these accounts. The transactions result from normal business activities such as billing customers or purchasing inventory. They can also result from journal entries, such as recording depreciation.

This template gives you everything you need to set up a simple, single-entry accounting system for your business. If your business is busy, and you find it hard to keep your books organized with this template, it may be time to consider https://adprun.net/new-business-accounting-checklist-for-startups/ double-entry bookkeeping. And your bookkeeper can always walk you through your GL if you have questions. Just know that when your bookkeeper prepares financial statements for you, they’re pulling from the general ledger.

Simplified Meaning of General Ledger

If you are a freelancer or sole proprietor, chances are that you may be able to get by without a general ledger, simply because you’re not using double entry accounting. But for every other business owner, the general ledger is the most important part of accounting. Thus, it forms the basis of your financial statements and helps you in evaluating the financial affairs of your firm. Furthermore, unlike journal where transactions are recorded in chronological order as they occur. Thus, you record transactions in the ledger by classifying them under various account heads to which they relate.

• By this same analogy, a ledger could be considered a folder that contains all of the notebooks or accounts in the chart of accounts.
• Since it reports revenue and expenses in real-time, it can help you stay on top of your spending.
• Instead, it provides a snapshot of a company’s financial health over a certain period of time.
• Operating Income is the income that you generate from your core business operations.

The account details can then be posted to the cash subsidiary ledger for management to analyze before it gets posted to the general ledger for reporting purposes. A general ledger provides the information necessary to create a balance sheet or cash flow statement. It also gives you a quick overview of your organization’s financial health. The reconciliation process is a matter of double-checking important accounts. Reconciliation involves checking each account within a general ledger to verify accuracy.

Recording Transactions

Such financial statements help you in knowing the profitability and overall financial position of your business. Instead, it provides a snapshot of a company’s financial health over a certain period of time. The primary purpose of a balance sheet is to provide an overview of the company’s assets and liabilities.

He has been the CFO or controller of both small and medium sized companies and has run small businesses of his own. He has been a manager and an auditor with Deloitte, a big 4 accountancy firm, and holds a degree from Loughborough University. Equity is the difference between the value of the assets and the liabilities of the business.

Expense accounts

Thus, these details come in handy as you do not have to look for invoices or bank statements at the time of filing tax returns. Thus, such a record helps you in tracking various transactions related to specific account heads. Further, it also helps in speeding up the process A CPAs Perspective: Why You Should or Shouldnt Work with a Startup of preparing books of accounts. You need to record various business transactions in your books of accounts based on the dual aspect of accounting. Thus, as per the Duality Principle, each transaction involves a minimum of two accounts while recording into books.