General Ledger

What is a general ledger?

A general ledger (GL) records and categorizes all financial transactions. Think of the general ledger as a big notebook that keeps track of every dollar coming in and out. It’s like the heart of a company’s accounting system.

Companies use the general ledger to generate financial statements like the balance sheet and income statement to see how much money they’re making (or losing).

Key points

A general ledger tracks all business transactions. It helps record all transactions, such as sales, expenses, payroll, and everything in between.
An organized ledger helps with decisions. The gl shows profit trends, helps with taxes, and guides business growth.

General ledger example

Let’s say you start a small coffee shop. You need to track every dollar coming in and out to set up a general ledger with different accounts like cash, inventory, revenue, expenses, and payroll.

Here’s what your general ledger might look like in the first week of business:

Date	Account	Debit	Credit	Description
Jan 1	Cash	$5,000		Initial investment
Jan 2	Equipment	$2,000		Purchased espresso machine
Jan 2	Cash		$2,000	Payment for equipment
Jan 3	Inventory	$500		Bought coffee beans & milk
Jan 3	Cash		$500	Payment for inventory
Jan 4	Cash	$200		Received payment for coffee
Jan 4	Revenue		$200	Sales recorded
Jan 5	Rent Expense	$1,000		Paid rent for shop
Jan 5	Cash		$1,000	Rent payment
Jan 7	Payroll	$600		Paid barista salary
Jan 7	Cash		$600	Payroll payment

Here’s how these entries work:

When you put your own money into the business, it increases cash (debit).
When you buy equipment, inventory, or pay expenses, those transactions decrease cash (credit).
When you sell coffee, the revenue account increases (credit), showing money earned.
Payroll and rent expenses decrease your available cash, so all costs are tracked.

Without a general ledger, tracking these financial activities would be a giant headache. You’d have no idea if you’re making money or losing cash. With a GL, you can see trends and profit margins and prepare for tax season without clocking overtime or digging through all your receipts.

A clean general ledger helps business owners make informed decisions like raising prices, cutting costs, or investing in new equipment. A GL is the foundation of a business’s financial records, so every transaction is tracked and accurate. Organizing it means better decision-making, easier tax filing, and long-term financial success.