The general ledger is a collection source for all the transactions of the business as this is where one will find all the transactions that have been posted to the individual ledger accounts. It is from the information that is found in the General ledger that Financial Statements (Income Statement and Balance Sheet) are compiled from.
In modern accounting software, the general ledger works as a central repository for accounting data transferred from all subledgers or modules. The general ledger is the backbone of any accounting system which holds financial and non-financial data for an organization. The collection of all accounts is known as ledger account.
The statement of financial position and the statement of income and comprehensive income are both derived from the general ledger. Each account in the general ledger consists of one or more pages. The general ledger is where posting to the accounts occurs. Posting is the process of recording amounts as credits (right side), and amounts as debits (left side), in the pages of the general ledger. Additional columns to the right hold a running activity total (similar to a chequebook).
The listing of the account names is called the chart of accounts. The extraction of account balances is called a trial balance. The purpose of the trial balance is, at a preliminary stage of the financial statement preparation process, to ensure the equality of the total debits and credits.
The general ledger should include the date, description and balance or total amount for each account. It is usually divided into at least seven main categories. These categories generally include assets, liabilities, owner’s equity, revenue, expenses, gains and losses. The main categories of the general ledger may be further subdivided into subledgers to include additional details of such accounts as cash, accounts receivable, accounts payable, etc.