General Ledger: Definition, T-Accounts, and How It Works
Definition
The General Ledger (GL) is the master accounting record that contains all financial accounts used by a company. It serves as the central repository for all transactions recorded through journal entries, organized by individual account.
How It Works
The general ledger contains every account listed in the chart of accounts, each with its own running balance. When journal entries are made, they are 'posted' to the general ledger — each debit and credit from the journal entry is recorded in the corresponding GL account. The posting process transfers information from chronological order (the journal) to account-by-account order (the ledger). T-accounts are a simplified visual representation of individual GL accounts, showing debits on the left and credits on the right. At the end of each period, the GL account balances are used to prepare the trial balance and, ultimately, the financial statements.
Example
After recording a sale for $5,000 on credit: The journal entry debits Accounts Receivable $5,000 and credits Sales Revenue $5,000. In the general ledger, the Accounts Receivable account shows a $5,000 debit entry increasing its balance, and the Sales Revenue account shows a $5,000 credit entry increasing its balance. Each account maintains its own running total.
Journal Entry Example
T-Account representation for the Cash account after three transactions.
| Account | Debit | Credit |
|---|---|---|
| Cash (Opening Balance) | $10,000 | |
| Cash (Customer Payment) | $5,000 | |
| Cash (Rent Payment) | $2,000 |
Common Misconceptions
- ✗The general ledger and the journal are the same — the journal records transactions chronologically as they occur. The general ledger organizes the same information by account. Information flows from journal to ledger (posting).
- ✗The general ledger is only for large companies — every company that uses double-entry bookkeeping has a general ledger, even if it's maintained in simple software. It's the foundation of all accounting.
- ✗You can skip the general ledger and go straight from journal to financial statements — while possible for very simple situations, the GL is essential for organizing transactions by account and maintaining running balances.
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Common questions about General Ledger
The general ledger contains summary-level accounts (e.g., total Accounts Receivable). A subsidiary ledger contains the detail behind a GL account (e.g., individual customer balances within AR). The subsidiary ledger total must equal the GL control account balance.
The trial balance is a list of all GL account balances at a specific date. It verifies that total debits equal total credits. If they don't balance, there's a posting error somewhere in the GL.
Posting is the process of transferring journal entry information to the general ledger accounts. Each debit and credit from a journal entry is recorded in the corresponding GL account, updating its running balance.