What is the General Ledger?
Explaining the purpose of the General Ledger is perhaps
a difficult task for any teacher of Accounting. One
reason is because in this age of computers and information
technology, the General Ledger does not any longer have
an easily identifiable physical form.
In early times a Ledger would have taken
the form of a book (see Figure 1), and hence the term
"Bookkeeping". The purpose of such a ledger
was to record transactions. The pages of the Ledger
would have been ruled into columns to facilitate neatness
and discipline in writing figures.
Figure 1: General Ledger kept in a book form
In more recent times, prior to the computer age, the
General Ledger was a large loose-leaf document containing
in a special adjustable binder (see Figure 2).
|Figure 2: Loose leaf General Ledger format
The standard format for a page in a general ledger is
portrayed by Figure 3 below. There are three columns
for recording money - Debit, Credit and Balance. There
is one page in the General Ledger for each Account,
and typically the number of Accounts will be many, depending
on the Chart of
Provided the General Ledger is up to date, the General
Ledger will show the current balance of each account.
In Figure 3 below, the balance of the Cash at Bank A/c
is $6,927.10. The account shows the Cash Receipts every
month (money coming in) and Cash Payments (money going
out). The monthly figures for Cash Receipts and Cash
Payments are in fact the totals posted from the Cash
Receipts Journal and Cash Payments Journals.
Figure 3: Format of the General Ledger
Perhaps the best way to explain the purpose of the
General Ledger is to provide a diagram (see figure 4
First of all, it is important to remember that the
purpose of the Accounting Process is to summarise, record
and make sense of, the thousands of financial transactions
that occur in a year, so that Financial Reports can
The General Ledger receives, on a monthly basis, summarised
information from the Journals (which are themselves
the basic day-to-day record of transactions). This is
illustrated in Figure 3 above where you can see information
being recorded on a monthly basis.
At the end of the financial year, the General Ledger
then provides a final balance for each account, summarising
all the monthly journal postings.
Today, in most businesses, the General Ledger is a component of Financial
Accounting Software and exists in the form of an electronic database.
In teaching the General Ledger, however, most teachers still
revert to explanations which use the earlier paper-based format.
The explanation given on this web page will also rely on the
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