general ledger (GL)

A general ledger (GL) is a set of numbered accounts a business uses to keep track of its financial transactions and to prepare financial reports. Each account is a unique record summarizing each type of asset, liability, equity, revenue and expense. A chart of accounts lists all of the accounts in the general ledger, which can number in the thousands for a large business.

During the bookkeeping process, other records outside the general ledger, called journals or daybooks, are used for the daily recording of transactions, such as cash payments toward an invoice, and their totals are posted in corresponding accounts in the general ledger. In accounting software, the transactions will instead typically be recorded in subledgers or modules. 

The totals calculated in the general ledger are then entered in other key financial reports, notably the balance sheet -- sometimes called the statement of financial position -- which records assets and liabilities, and the income statement, which shows revenues and expenses.

Income statements are considered temporary accounts and closed at the end of the accounting year. Their net balances, positive or negative, are added to the equity portion of the balance sheet -- specifically, owners' or shareholders' equity in a private company, or retained earnings in a nonprofit organization, and figures that are derived by subtracting liabilities from assets. In contrast, the accounts that feed into the balance sheet are permanent accounts used to track the ongoing financial health of the business.

General ledger accounts are not budget accounts. Instead, they show actual amounts spent or received and not merely projected in a budget.

Types of general ledger accounts

Broadly, the general ledger contains accounts that correspond to the income statement and balance sheet for which they are destined.

The income part of the income statement might include totals from general ledger accounts for cash, inventory and accounts receivable -- money owed to the business -- sometimes broken down into departments such as sales and service and related expenses. The expense side of the income statement might be based on GL accounts for interest expenses and advertising expenses.

SAP S/4HANA general ledger screen.
A screen in the general ledger module of SAP's S/4HANA ERP suite lets you view a directory of the journal entries that feed data into a GL account.

Other GL accounts summarize transactions for asset categories, such as plant and equipment, and liabilities, such as accounts payable and notes, or loans.

Other types of GL accounts

While the above accounts appear in every general ledger, other accounts may be used to track special categories, perform useful calculations or summarize groups of accounts. The latter type is called a control account.

For example, an accountant might use a T-account -- so named because of its T shape -- to track just the debits and credits in a particular general ledger account.

Accounting cycle process

Following the rules of double-entry bookkeeping, each entry in the general ledger must appear in two places: once as a debit and once as a corresponding credit. And the two added together must equal zero.

The terms debit and credit do not have their commonplace meanings, and whether each adds to or subtracts from an account's total depends on the type of account. For example, debiting an income account causes it to increase, while the same action on an expense account results in a decrease.

General ledger reconciliation

At the end of each accounting period, a trial balance is calculated by listing all of the debit and credit accounts and their totals, and separating those with debit balances from the ones with credit balances. The debit and credit accounts are then totaled to verify that the two are equal. If they aren't, the accountant can look for errors in the accounts and journals.

However, the trial balance cannot serve as proof that the other records are free of errors. For example, if journal entries for a debit and its corresponding credit were never recorded, the totals in the trial balance would still match.

Companies use a general ledger reconciliation process to find and correct such errors in the accounting records.

General ledger accounting software

For centuries, general ledgers were kept on paper, but in recent decades have typically been automated in enterprise accounting software and in ERP, which integrates core accounting functions with modules for managing related business processes, such as order management and human resource management. GLs are also a component in enterprise asset management software.

In such systems, the GL serves as a central repository for the accounting data.

This was last updated in May 2017

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How user-friendly is the general ledger in your ERP system?
What kind of general ledger software does your company use?

The GL process is very good in SAP but while transferring or budget modification some time facing issues of modifications due to GL account conflict.

Dibyendu Das

thank you i recently hired uiz Berlin for my GL accounting  they dealt with cash flow forecast and GL cost revenue processing

e processing