HopefullyInLawSchool
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Simple English definitions for legal terms
general ledger
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A quick definition of general ledger:
General ledger is a big book that businesses use to keep track of all their money. It helps them make important financial statements. Every time a business gets or spends money, they write it down in the general ledger. They use a special way of writing called double-entry accounting to make sure everything is correct. The general ledger has different sections for things like money they have, money they owe, and money they earned. It's like a big puzzle that helps businesses understand their money better.
A more thorough explanation:
General ledger is a record-keeping system used by businesses to track their financial transactions. It is the main accounting ledger that businesses use to debit and credit accounts. The ledger is used to create financial statements that show the business's financial health.
Businesses follow the generally accepted principles of accounting (GAAP) and standard accounting practices. They use the double-entry accounting method where every transaction is recorded as a debit and a credit. This method ensures that the ledger is accurate and complete.
The general ledger records all of the activity within each account. For example, a business may have an account for sales revenue. Every time the business makes a sale, the amount of the sale is recorded as a credit in the sales revenue account. If the business incurs an expense, such as rent, the amount of the expense is recorded as a debit in the rent expense account.
Transactions may be grouped together into smaller ledgers, but they will be recorded as a group into the general ledger. The general ledger is the source for creating the aggregate information needed for the financial statements and for any research into a business’s transactions.
Overall, the general ledger is an essential tool for businesses to keep track of their financial transactions and ensure that their financial statements are accurate and complete.