There can be multiple transactions occurring in a business per day, and as per double entry bookkeeping system, each transaction shall have two entries (one for debit and one for credit). The account which stores these entries are known as ledger accounts.
What is General Ledger
General ledger refers to the primary accounting record that is maintained by a company, which is based on the double entry bookkeeping system. It contains the record of all the financial transactions taking place in a business.
General ledger forms the basis of financial reporting and associated information. It is helpful in the preparation of financial statements such as balance sheet and income statement.
The general ledger includes the following accounts
- Fixed assets and Current assets
- Revenue and expenses
- Gains and losses
Steps involved in creation of General Ledger
The following steps are involved in preparation of a general ledger:
- Creation of a journal for each transaction that takes place
- Categorising each transaction into particular accounts like cash, sales, etc.
- Updating these accounts periodically
- At the end of an accounting period, transfer those entries to the general ledger.
Benefits of General Ledger
The following are some of the benefits of the general ledger:
- It provides the position of the business at any given point of time.
- It helps in bank reconciliation, as all the transactions pertaining to a bank account are recorded in one place.
- It helps auditors in understanding about the transaction taking place in the business.
Layout of General Ledger
General ledger consists of two columns, one containing the debit transaction and one containing all the credit transactions. Debit transactions are represented on the left side, while credit transactions are represented on the right side.
This concludes the topic of General Ledger, which is an important component of Accountancy for the students of Commerce. For more information, stay tuned to BYJU’S.