General ledger

What it means

The general ledger holds every accounting entry arranged by account: for each one the opening balance, debit and credit turnover, and the closing balance. It is where individual documents turn into a statement.

It is kept alongside the journal, which arranges the same entries chronologically. The journal answers "what happened and when", the ledger answers "how much sits on which account".

Only double-entry bookkeeping has a general ledger. A sole trader keeping tax records or an organisation on single-entry books keeps a cash journal and auxiliary books that capture income and expenses but give no complete picture of assets and liabilities, because the link between debit and credit is missing.

How it works in practice

The trial balance comes out of the ledger, and the annual closing out of that. So balances are checked monthly against real evidence: the bank against the statement, receivables against the sub-ledger, stock against the records.

How detailed the ledger is depends on the sub-account structure. A well-designed one is the difference between a statement you can manage from and a statement that merely satisfies the law.

When we take over the books from another accountant, we ask for the general ledger for the last year in electronic form, not just the financial statements. We compare its closing balances with the opening balances in the new system, and every difference needs an explanation before the first document of the new year is posted.

What to watch out for

Ledger entries are never deleted or overwritten. A correction is made by a correcting entry referencing the original document - otherwise the auditability of the books is broken, which in an inspection weighs heavier than the error itself.

Balances on clearing accounts, such as cash in transit or internal settlement, should be zero or explained at year end. When they sit in the ledger for years they hide errors in matching payments, which at a tax audit can only be traced back with a great deal of effort.