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 1

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 Accounts.

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.

Perhaps the best way to explain the purpose of the General Ledger is to provide a diagram (see figure 4 below).

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 be produced.

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.

Figure 4