What is the general ledger?
The general ledger serves as a financial log capturing all transactions and balances within an entity. This vital component of an accounting system presents a sequential summary of all financial activity, typically categorized into various accounts tracking different transaction types such as revenue, expenses, assets, and liabilities. These accounts are regularly updated to provide a snapshot of the company's financial status at any point in time.
How does the general ledger function?
The general ledger acts as a comprehensive record of all financial transactions within a company, ensuring accuracy in financial statements. It is segmented into sections corresponding to various transaction types, such as accounts receivable, payable, and cash transactions, providing an organized overview of the company's financial dealings.
How is the general ledger distinct from a chart of accounts?
The general ledger documents every financial transaction, while the chart of accounts compiles a list of these accounts for record-keeping and financial statement preparation. The chart of accounts simplifies financial tracking and reporting.