In plain English
Each transaction posts to the general ledger as debits and credits. Reports are built from it.
Reviewing the ledger monthly catches odd entries.
Why it matters
Every report you see is a summary of the general ledger. When a number on the profit and loss looks wrong, the ledger is where you go to see the actual transactions behind it. Being able to read it means you can find and fix errors yourself instead of guessing.
The ledger is also what auditors, lenders and tax preparers ask for when they want detail. A clean ledger, with clear descriptions and attached documents, makes those reviews faster and cheaper.
Worked example
A $120 phone bill posts a debit to telephone expense and a credit to checking.
How to handle it
- Run the general ledger report for the month, filtered to one account at a time if it is long.
- Scan for duplicate amounts, missing descriptions and transactions in unexpected accounts.
- Click into any odd entry to see its source and attached documents.
- Correct errors with a proper entry or by fixing the source transaction, rather than deleting history in closed periods.
- Export the ledger at year end and give it to your preparer along with the reports.
Common mistakes
- Only reading summary reports, so a single misposted large entry stays hidden in a total.
- Leaving memo fields blank, which makes it hard to understand entries months later.
- Making corrections in prior closed periods, which changes reports that were already shared or filed.
- Posting many transactions to an uncategorized account and never clearing it, which leaves the ledger incomplete.
Not the same as: Trial balance
The general ledger lists every transaction in every account. The trial balance lists only each account's ending balance to confirm debits equal credits. See Trial balance.
Go deeper
- What Is a General Ledger and Why It Matters: Learn what a general ledger is, how it differs from journals and subledgers, how to read it, and how to use it to track down errors.
- What Is a Trial Balance and How to Use One: Understand the trial balance report, how to read debit and credit columns, what it proves and does not, and how to use it to catch errors.
Related terms
- Gross margin: Gross profit as a percentage of revenue.
- Gross profit: Revenue minus cost of goods sold, before operating expenses.
- Form W-9: The form a contractor gives you with their name, tax classification and taxpayer ID before you pay them.
Common questions
What is a general ledger?
The complete record of every account and transaction in a business's books.
Can you give an example of general ledger?
A $120 phone bill posts a debit to telephone expense and a credit to checking.
Is the general ledger the same as my bank register?
No. A bank register shows activity in one account. The general ledger includes every account, such as income, expenses, loans and equity.
How do I find a single transaction in the ledger?
Filter the report by account, date range or amount. Most software also lets you search by vendor, customer or memo.
General information, not tax, legal or accounting advice. Confirm rules with the IRS, the NJ Division of Taxation or a licensed professional.