Definition
A general ledger is the master record of every financial transaction a business makes, organized into accounts such as cash, accounts receivable, revenue, and expenses. Each invoice, payment, and bill ends up as entries in the general ledger, which is the source for the balance sheet and profit and loss statement.
Also called: GL, Nominal ledger
General ledger in practice
In double-entry bookkeeping, every transaction posts to at least two general ledger accounts. Issuing an invoice increases accounts receivable and revenue; receiving payment increases cash and reduces accounts receivable.
Most small businesses never touch the general ledger directly. Invoicing and accounting software post entries automatically as you create invoices, record payments, and enter expenses. What matters is that each invoice and payment is recorded once, in the right period, against the right client.
Accountants review the general ledger at month end and year end, reconcile it against bank statements, and use it to prepare tax returns.
Example
When a plumber issues a $500 invoice, the general ledger records $500 in accounts receivable and $500 in service revenue. When the client pays, cash increases by $500 and accounts receivable decreases by $500.
Frequently Asked Questions
What is the difference between a general ledger and a journal?
A journal records transactions in date order as they happen. The general ledger groups those same entries by account, so you can see the balance of each account.
Do invoices go in the general ledger?
Under accrual accounting, yes: each invoice posts to accounts receivable and revenue when issued. Under cash accounting, the revenue is recorded when the payment is received.
Related terms
- Journal entry A journal entry is a record of a single financial transaction in a business's books, listing the date, the accounts affected, the debit and credit amounts, and a short description.
- Chart of accounts A chart of accounts is the organized list of all the accounts a business uses to record transactions in its general ledger, grouped into assets, liabilities, equity, revenue, and expenses.
- Double-entry bookkeeping Double-entry bookkeeping is the accounting system in which every transaction is recorded in at least two accounts, with equal debits and credits, so the books always balance.
- Accounts receivable Accounts receivable is the total amount of money owed to a business by its clients for invoices that have been issued but not yet paid.
- Reconciliation Reconciliation is the process of matching payments received in your bank account to the invoices they settle, and confirming that your invoicing records agree with your bank records.
This page is for general information only and is not legal, tax, or financial advice. Rules change and vary by location, so consult a qualified lawyer or accountant about your situation.