Login
Copyright

What Is a General Ledger? - Definition & Examples

An error occurred trying to load this video.

Try refreshing the page, or contact customer support.

Coming up next: Financial Documents: Definition, Types & Business Examples

You're on a roll. Keep up the good work!

Take Quiz Watch Next Lesson
 Replay
Your next lesson will play in 10 seconds
  • 0:00 What Is a General Ledger?
  • 0:43 The General Journal
  • 1:38 The General Ledger
  • 5:08 Lesson Summary
Add to Add to Add to

Want to watch this again later?

Log in or sign up to add this lesson to a Custom Course.

Login or Sign up

Timeline
Autoplay
Autoplay
Create an account to start this course today
Try it free for 5 days!
Create An Account
Lesson Transcript
Instructor: Tina Van Rikxoord
Accountants and bookkeepers record financial events in multiple documents in order to ensure the accuracy of the information. In this lesson, we will look at the general ledger and you can discover how to make entries into this ledger.

What is a General Ledger?

Every business has a variety of expenses and ways of earning income, just as you have different bills and different income streams. Like you, a business may have utility bills, rent expenses, and vehicle repair costs, while its income may come from different places, such as sales, interest from bank accounts, loans, or from selling items that the company owns. You might record these events as they occur in your life in your check register. For a business, all of these financial events, or transactions, must be recorded in their financial books. The general ledger is a company's master account book, with all of the various accounts in one place. The general ledger is used in conjunction with a couple of other accounting tools.

The General Journal

Every financial transaction in which a company engages is first recorded in a general journal (which is different from the general ledger) in chronological order. The journal is the first place where transactions are recorded, so it is organized by date. This is efficient for doing research about transactions that occurred on a particular date, but it makes it a little more challenging to locate, for example, all the transactions that involved cash or just the transactions pertaining to accounts receivable.

Figure 1- General Journal
General Journal entries

As you can see from the image of the general journal in Figure 1, the cash transactions are scattered around on different lines of the journal. This may not seem too bad when there are only four entries, but it becomes a little more difficult to find just the cash entries when there are 54 transactions, or 154! In order to group all the transactions of a similar kind in one place, transactions are rewritten, or posted, to their respective accounts in the general ledger.

The General Ledger

The general ledger is where the company records all the information for its various income streams and expense types into separate accounts, so that all the credits and debits relating to that particular type of transaction can be entered in one place and kept balanced. This keeps the information organized not only by date, but also by account type.

Figure 2 - General Ledger showing a few of the possible accounts a company might use
General ledger

This image, which we call figure two for reference, is a general ledger showing a few of the possible accounts a company might use. Let's look at an example: if the general journal shows a cash debit of $500, and cash credits of $65 and $1,500, as shown in Figure 1 above, then these cash transactions are posted to the Cash Account as shown in Figure 3, below. Now, we can easily see what is going on with our cash.

Figure 3 - Cash Account portion of general ledger in Figure 2 after posting the Example transactions
Cash Account

In this example, the cash account started with a debit balance of $2000 on January 1, and ended with a debit balance of $935 on February 7, after posting the three entries listed. When posting to an account in the general ledger, include the date of the transaction, a brief explanation of the transaction, a posting reference, the amount of the debit or credit, and the new running balance for the account. The posting reference indicates where the transaction was originally documented, such as page one of the general journal, which might be written as 'journal, pg 1' or 'J1'.

Chart of Accounts

While most companies use the most common accounts, such as a cash account or an office supplies account, exactly which accounts are included in the general ledger depends upon each individual company and the nature of its business. For example, a landscaping company that owns trucks will usually have a vehicle maintenance and repairs account, where it lists maintenance and other related vehicle expenses, while a service company that does all its business over the phone and owns no vehicles would not. The list of accounts that a company has is called the Chart of Accounts. This list is used to determine which accounts need to be used in the general ledger and in which order.

Numbering Accounts in the General Ledger

The general ledger accounts are usually assigned an account number and are listed in the same order that they appear in the chart of accounts. Asset accounts are assigned numbers starting with a '1', such as 10, 100, or 10000. Liability accounts generally start with a '2', owner's equity accounts start with a '3', revenue accounts start with a '4' and expense accounts start with a '5'. Keep in mind that there are various kinds of assets, liabilities, equity, revenues, and expenses, so there will be an account in the general ledger for each asset, liability, equity, revenue, and expense that the company uses. You can see that in Figure 2, the cash account is assigned the number 101, the accounts receivable account is assigned account number 105, and the office supplies account is 110. These are all asset accounts, so they all begin with a '1'. Individual transactions within each account, however, are listed chronologically by the date they occurred.

To unlock this lesson you must be a Study.com Member.
Create your account

Register for a free trial

Are you a student or a teacher?
I am a teacher

Unlock Your Education

See for yourself why 30 million people use Study.com

Become a Study.com member and start learning now.
Become a Member  Back

Earning College Credit

Did you know… We have over 95 college courses that prepare you to earn credit by exam that is accepted by over 2,000 colleges and universities. You can test out of the first two years of college and save thousands off your degree. Anyone can earn credit-by-exam regardless of age or education level.

To learn more, visit our Earning Credit Page

Transferring credit to the school of your choice

Not sure what college you want to attend yet? Study.com has thousands of articles about every imaginable degree, area of study and career path that can help you find the school that's right for you.

Create an account to start this course today
Try it free for 5 days!
Create An Account
Support