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What is a General Ledger GL?

July 28, 2023
Bill Kimball

In this instance, one asset account (cash) is increased by $200, while another asset account (accounts receivable) is reduced by $200. The net result is that both the increase and the decrease only affect one side of the accounting equation. For this transaction, the credit column will remain unchanged for this account. However, a separate ledger for the company’s accounts receivable will reflect a credit reduction for the same amount, because ABCDEFGH Software no longer has that amount receivable from its client.

  • In accounting, the terms debit and credit differ from their commonplace meanings.
  • 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.
  • A general ledger summarizes all the transactions entered through the double-entry bookkeeping method.
  • Therefore, everyone within the company network can access the ledger at any point and make a personal copy of the ledger, making it a self-regulated system.
  • Companies use a general ledger reconciliation process to find and correct such errors in the accounting records.

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. These accounts only contain summary balances that have been posted from subsidiary ledgers. This is done in order to minimize the transaction volume cluttering the general ledger.

The set of 3-financial statements is the backbone of accounting, as discussed in our Accounting Fundamentals Course. Some general ledger accounts can become summary records and will be referred to as control accounts. In that situation all of the detail that supports the summary amounts in one of the control accounts will be available in a subsidiary ledger. In accounting, a General Ledger (GL) is a record of all past transactions of a company, organized by accounts.

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. These transactions can include cash payments against an invoice and their totals, which are posted in corresponding accounts in the general ledger. In accounting software, the transactions will instead typically be recorded in subledgers or modules. The general ledger functions as a collective summary of transactions posted to subsidiary ledger accounts, such as cash, accounts payable, accounts receivable and inventory.


In the case of certain types of accounting errors, it becomes necessary to go back to the general ledger and dig into the detail of each recorded transaction to locate the issue. At times this can involve reviewing dozens of journal entries, but it is imperative to maintain reliably error-free and credible company financial statements. In accounting software, a general ledger sorts all transaction information through the accounts. Also, it is the primary source for generating the company’s trial balance and financial statements.

gl account means

The general ledger is a set of accounts that records the day-to-day transactions of a business entity by using the double-entry accounting method. The accounting for the general ledger is a summary of all the subsidiary ledger in which all the transaction has been recorded. Each transaction has two parts one is debit and one is credit, and a total debit balance of the general ledger will always match with a total credit balance. A general ledger account is a record in which is recorded a specific type of transaction. These transactions can relate to assets, liabilities, equity, sales, expenses, gains, or losses – in essence, all of the transactions that are aggregated into the balance sheet and income statement. The ending balances in these accounts are then aggregated and reported in the balance sheet and income statement.

General ledger accounting software

Instead, they show actual amounts spent or received and not merely projected in a budget. This ledger pertains to the entity’s financial obligation to the outside. This sub-ledger includes creditors, long-term borrowings, and short-term borrowing. The general ledger should include the date, description and balance or total amount for each account. Therefore, everyone within the company network can access the ledger at any point and make a personal copy of the ledger, making it a self-regulated system. This mitigates the risks that Centralized General Ledgers have from having one source control the ledger.

This data from the trial balance is then used to create the company’s financial statements, such as its balance sheet, income statement, statement of cash flows, and other financial reports. A general ledger represents the record-keeping system for a company’s financial data, with debit and credit account records validated by a trial balance. It provides a record of each financial transaction that takes place during the life of an operating company and holds account information that is needed to prepare the company’s financial statements. Transaction data is segregated, by type, into accounts for assets, liabilities, owners’ equity, revenues, and expenses. Double-entry transactions, called “journal entries,” are posted in two columns, with debit entries on the left and credit entries on the right, and the total of all debit and credit entries must balance.

gl account means

This helps accountants, company management, analysts, investors, and other stakeholders assess the company’s performance on an ongoing basis. The totals calculated in the general ledger are then entered into other key financial reports, notably the balance sheet — sometimes called the statement of financial position. The balance sheet records assets and liabilities, as well as the income statement, which shows revenues and expenses. A complete list of all general ledger accounts that a company uses is contained within the chart of accounts, which is a simple listing of account numbers and account descriptions. The chart is usually organized to show all balance sheet accounts, followed by all income statement accounts. Examples of other general ledger accounts that are commonly used are noted below.

Controlling Accounts vs. Subsidiary ledger

However, in recent decades they have been automated using enterprise accounting software and in enterprise resource planning applications. These tools integrate core accounting functions with modules for managing related business processes. In this guide we’ll walk you through the financial statements every small business owner should understand and explain the accounting formulas you should know. For example, the GL code for an accounts receivable might be account #105. GL codes aren’t substitutes for descriptive account names, but they’re a useful tool for rapid data entry and effective organization. The income statement will also account for other expenses, such as selling, general and administrative expenses, depreciation, interest, and income taxes.

gl account means

A general ledger summarizes all the transactions entered through the double-entry bookkeeping method. Under this method, each transaction affects at least two accounts; one account is debited, while another is credited. The total debit amount must always be equal to the total credit amount.

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. The transactions are then closed out or summarized in the general ledger, and the accountant generates a trial balance, which serves as a report of each ledger account’s balance. 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. However, the trial balance does not serve as proof that the other records are free of errors.

What is a GL reconciliation process?

The difference between these inflows and outflows is the company’s net income for the reporting period. In this example, the transaction is for a cash payment from a client account to ABCDEFGH Software. Since the cash account is receiving income, then the debit column will show an increase and display a sum for the amount. Other GL accounts summarize transactions for asset categories, such as physical plants and equipment, and liabilities, such as accounts payable, notes or loans. This ledger pertains to all expenses incurred by the entity for the business operation.

The income statement follows its own formula, which works as follows. When a company receives payment from a client for the sale of a product, the cash received is tabulated in net sales along with the receipts from other sales and returns. The cost of sales is subtracted from that sum to yield the gross profit for that reporting period. To maintain the accounting equation’s net-zero difference, one asset account must increase while another decreases by the same amount. The new balance for the cash account, after the net change from the transaction, will then be reflected in the balance category.

Income statement accounts

A company’s GL is the basis of its financial reporting and the source of the information used therein. Transactions are noted from a source document, such as an invoice or bill, and tracked in the general journal. Periodically, all transactions made within a company are posted to the general ledger. Since the GL is comprised of a company’s total financial accounts, it is instrumental in the preparation of key financial reporting documents such as the balance sheet and income statement. When expenses spike in a given period, or a company records other transactions that affect its revenues, net income, or other key financial metrics, the financial statement data often doesn’t tell the whole story.

A common example of a general ledger account that can become a control account is Accounts Receivable. The summary amounts are found in the Accounts Receivable control account and the details for each customer’s credit activity will be contained in the Accounts Receivable subsidiary ledger. The reconciliation process is a matter of double-checking important accounts. Reconciliation involves checking each account within a general ledger to verify accuracy. The process begins by gathering the information for each account in review, then examining any journal entries which have been made to correct errors in the ledger.

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. Goods-receipt/invoice-receipt accounts can have either a credit or debit balance. 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 a specific type of asset, liability, equity, revenue or expense. A chart of accounts lists all of the accounts in the general ledger.

At the end of each fiscal period, a trial balance is calculated by listing all of the debit and credit accounts and their totals. Those with debit balances are separated 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 looks for errors in the accounts and journals.

For example, if journal entries for a debit and its corresponding credit were never recorded, the totals in the trial balance would still match and not suggest an error. In contrast, the accounts that feed into the balance sheet are permanent accounts used to track the ongoing financial health of the business. During the bookkeeping process, other records outside the general ledger, called journals or daybooks, are used for the daily recording of transactions. The general journal consists of the accounting entries for each business transaction that occurred in order by date.