The general ledger is probably the most important work-paper for bookkeepers and possibly even internal accountants. All of a company’s transactions should be reflected in a relatively easy-to-read manner on the general ledger.

The Process:

Understanding the posting process will make it easier to understand exactly what the general ledger account is. When a company makes a sale, or a purchase, or does just about anything that would trigger some form of information that should be gathered, then the accountant makes a journal entry. In a basic accounting system, the entry will be made to the general journal—not to be confused with the general ledger.

A picture is usually the easiest way to demonstrate the difference between the general ledger accounts and the general journal.

General Journal

I don’t really like the entry used in this example, but this is a great picture of what a general journal looks like (whether it be an electronic version or a paper version). The idea to general ledger accounting is that you track all information about the company with debits on the left and credits on the right.

General Ledger

After the accountant has made the entry in the general journal, it is time to put the information in the general ledger. Note: In almost all cases the general ledger is broken up into several categories: for example cash or an accounts receivable general ledger. There is also sometimes a category for everything else that doesn’t fit into one of the smaller categories.

As you can see from the above image of a general ledger, it is an easy way to look and see the balance of the account at any point in time.

Quick recap of general ledger accounting to this point: company performs a transaction, bookkeeper posts transaction to the general journal, finally the bookkeeper posts information in the general ledger.

General Ledger Chart of Accounts

You may have noticed in the above image of the general ledger (GL) an account number of 0001. The chart of accounts is simply a listing of all of the different accounts that may be within the general ledger. For a small business, with simple transactions, the chart of accounts doesn’t really provide a lot of value. However, for large businesses sometimes the transactions are very complex and the company may have hundreds of different types of general ledger accounts. In these cases the GL chart of accounts can really make it easier to keep track of transactions. These numbers are especially useful in software.

To finish off our discussion of general ledger accounting let’s talk about the trial balance. At the end of the year, the accountant or the accounting software will take everything from the GL and move it to the trial balance. The trial balance is simply a large T account that makes sure all of the debits and all of the credits balance. This gives some confidence as to the accuracy of the accounting.