A general ledger (GL) is the complete, organised record of a business's accounts. Every transaction the business makes, from a sale to a salary payment to a loan repayment, ends up in the general ledger as a set of debits and credits posted to named accounts such as cash, accounts receivable, revenue or rent expense. The balances on those accounts are the raw material for the trial balance and, after adjustments, for the financial statements.
The general ledger is the central book in a system of double-entry accounting. It sits above detailed records called subledgers, which hold customer-by-customer or invoice-by-invoice detail, and below the reports that management, auditors, tax authorities and regulators read. Today it is almost always kept in accounting software or an enterprise resource planning (ERP) system rather than on paper. The wider idea of a ledger as a record of balances also applies to banks and blockchains, but the general ledger is specifically the accounting book of one entity.
General ledger in plain terms
Think of a filing cabinet with one folder for every kind of money a business deals with: one for the bank balance, one for what customers owe, one for sales, one for electricity bills. Whenever something happens, a clerk writes a slip and drops a copy into each folder it affects. At any moment you can open a folder and see its running total.
The general ledger is that cabinet. It does not tell the story of the day in order; that is the job of the journal. Instead, it sorts everything by folder, so the owner can ask "how much cash do we have?" or "what did we spend on rent this year?" and get one clear number.
Structure: the chart of accounts
A general ledger is organised by a chart of accounts, a numbered list of every account the business uses. Numbering schemes vary, but a common pattern groups accounts by type:
- Assets. Cash, receivables, inventory, prepaid expenses and equipment, often numbered in the 1000s.
- Liabilities. Accounts payable, loans, accrued wages and deferred revenue, often in the 2000s.
- Equity. Share capital and retained earnings, often in the 3000s.
- Revenue. Sales and fee income, often in the 4000s.
- Expenses. Cost of sales, salaries, rent, depreciation and other expenses, often in the 5000s and above.
Asset, liability and equity accounts carry their balances forward from year to year and feed the balance sheet. Revenue and expense accounts collect one period's activity, feed the income statement, and are closed to retained earnings at year end. Larger groups add segments to each account code for legal entity, department, cost centre or product, so the same ledger can produce reports for each slice of the business.
How transactions reach the general ledger
Transactions are first captured as journal entries, each with a date, a description, the accounts affected and equal debit and credit amounts. Posting copies each line into the relevant general ledger account. In modern systems this happens automatically: an invoice raised in the billing module posts to receivables and revenue; a supplier payment posts to payables and cash.
High-volume activity is usually summarised. A payment company may process millions of card transactions a day, each recorded in a detailed subledger, and post only daily totals to the general ledger. The subledger balance and the matching general ledger "control account" must agree, which is checked through account reconciliation. Cash accounts are separately checked against bank statements through bank reconciliation.
A small example: a consultancy invoices a client $5,000. The entry debits accounts receivable $5,000 and credits consulting revenue $5,000. When the client pays, cash is debited $5,000 and receivables credited $5,000. After both postings, the receivables account is back to zero, cash is up $5,000, and revenue shows $5,000 for the period.
The general ledger in banks and payment firms
Banks run two layers of records. Customer accounts live in the core banking system, which acts as a very large subledger; the bank's own general ledger holds summary balances such as "customer deposits", "loans to customers" and "cash at the central bank". Each night, batch jobs post the day's totals from the core system to the GL, and controllers reconcile the two.
Fintechs, e-money issuers and wallet providers face the same split. Customer balances in an app's internal ledger must tie back to a general ledger liability, and that liability must be matched by money held in safeguarding or trust accounts. Engineering problems such as ledger sharding and balance caching arise in the detailed transaction ledger; the general ledger remains the accounting summary that auditors sign off.
Controls, closing and legal requirements
Because the general ledger drives every external report, access to it is tightly controlled. Typical controls include restricting who can post manual journals, requiring a maker-checker approval for large or unusual entries, locking periods once they are closed, and keeping a full audit trail of changes. At each month end, the financial close process reviews and adjusts general ledger balances before reports are issued.
Company law sets the basic duty. In the UK, section 386 of the Companies Act 2006 requires companies to keep adequate accounting records that show and explain their transactions. In India, section 128 of the Companies Act 2013 requires books of account to be kept on an accrual basis and under the double-entry system, and since 1 April 2023 companies using accounting software must use software that keeps an edit log of every change. In the US, public companies' controls over the ledger fall under the internal-control reporting rules of the Sarbanes-Oxley Act of 2002, and an independent auditor tests them.