What is a General Ledger?
A general ledger (GL) is a consolidated record of a company's accounting entries.
How Does a General Ledger Work?
The general ledger is the central place, usually electronic, that stores every accounting entry a company makes. The entries, called journal entries, are debits and credits. The entries are made to various accounts (for example, payroll, inventory, or advertising). These accounts fall into categories such as assets, liabilities, revenue, etc.
A company often has dozens of accounts and tens of thousands of journal entries in the general ledger in a year. Every journal entry should involve a debit and an offsetting credit -- this is the basis of the double-entry bookkeeping method.
Why Does a General Ledger Matter?
The general ledger is what generates the income statement, the balance sheet, and the cash flow statement. As such, it is critical to keep the GL error-free and secure.
The sum of all the debits in the GL should equal the sum of all the credits in the GL for a given period, which is why you might hear accountants talking about working on the 'trial balance.'
