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What Is a General Ledger?

By Bryce Warnes on September 19, 2019

The general ledger has been around since the days when the abacus was cutting-edge. But while computers have mostly phased out beads, the general ledger is still important today.

That’s because all of your company’s financial reports—including its balance sheet—are prepared using information in the general ledger.

Here’s what you need to know about this stalwart of business bookkeeping.

What is the general ledger?

The general ledger summarizes all the financial information you have about your business.

In the past, the general ledger was literally a ledger—a large book where information was recorded by hand. It’s still possible to do your bookkeeping with a paper ledger. But, since doing bookkeeping by hand takes 1,000 times longer, most business owners and bookkeepers handle general ledger tasks on their computers.

The general ledger is made of many smaller ledgers

The money your business earns and spends is organized into sub-ledgers. They’re like notebooks where you write down important information as it happens. Then, you summarize that information in a master notebook—the general ledger.

Here are some examples of common sub-ledgers:

  • Accounts receivable: money owed to your business
  • Accounts payable: money your business owes
  • Cash: liquid assets your company owns
  • Inventory: sales or purchases affecting your inventory

The sub-ledgers you use will depend on what type of business you run. When you hire a bookkeeper who understands your industry, they’re able to set up your books using sub-ledgers that make sense for you.

Why the general ledger matters

There are two good reasons why the GL (as all the hip accountants call it) matters.

1. It’s how you get financial statements

Financial statements help you track your business’s financial performance and cash flow. They draw on data compiled in the general ledger.

There are three core types of financial statements useful to small business owners: the income statement, the balance sheet, and the statement of cash flow. The general ledger matters because financial statements matter.

2. You need it to file your taxes

You (or your accountant) need to refer to the general ledger in order to file your taxes. For instance, if you’re filing a Form 1099 for a contractor, you need to know how much you paid them during the financial year.

In that case, checking your invoices against the general ledger will ensure you’re preparing the Form 1099 for them correctly.

3. It gives you one place to view all your transactions

When you record a financial transaction, it’s called a journal entry, because bookkeeping has always been done by hand, in journals. Change is hard, so we still call them journal entries today.

The general ledger is where you can see every journal entry ever made. Rather than having to comb through your bank statements, credit statements, and invoices when looking for one transaction, you can just check the general ledger. It’s all there.

How you access the general ledger

If you do your bookkeeping in Excel, your general ledger is where you record your journal entries.

If you’re more of an accounting software person, the general ledger isn’t so much something you use, as it is a report you can pull. Your software of choice will probably have an option to “view general ledger” which will show you all the journal entries you’ve entered (for a given time frame).

And if you work with a professional bookkeeper (like Bench), good news! You don’t need to ever think about the general ledger. They’ll do that for you. 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.

Man in a tie at a table with paper on it holding a pencil and using an adding machine

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This post is to be used for informational purposes only and does not constitute legal, business, or tax advice. Each person should consult his or her own attorney, business advisor, or tax advisor with respect to matters referenced in this post. Bench assumes no liability for actions taken in reliance upon the information contained herein.

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