A collection of plenty of accounts that are utilized to record and sort information from a company’s financial transaction is known as a general ledger. The general ledger is maintained as follows:
- Balance sheet accounts (assets, liabilities, equity)
- Income statement accounts (revenues, expenditures, profit, loss)
Each business transaction has the amount of debits equivalent to the amounts of credits under the double entry system of bookkeeping. So, theoretically, the general ledger should have its debit amounts equivalent to its credit amounts.
In an accounting system where transactions are recorded manually, the general ledger used to be a “book” with a separate page, also called as ledger sheet, for each account. A subsidiary ledger was used when large amounts of information regarding an account such as accounts receivable was required.
However, in the automated system, the general ledger is the electronic file of all the subsidiary accounts. This enables the accountants of the company to formulate electronic financial statements.