General Ledger

The general ledger is the complete record of an entity's financial activity, organized by account. Every transaction that reaches the financial statements is in it, as a debit to one or more accounts and an equal credit to others. Everything else in an accounting system is either a feeder into the ledger or a view of it.

Three structures surround it. The chart of accounts defines what accounts exist and how they roll up, which determines what the financial statements can show and what any analysis of them can distinguish. Subledgers hold the transaction-level detail for high-volume areas, accounts receivable by customer and invoice, accounts payable by vendor, fixed assets by asset, inventory by item, and post summarized entries into a corresponding control account in the ledger. The trial balance is the ledger expressed as one balance per account at a point in time, which is what the financial statements and the tax return are actually built from.

The relationship between a subledger and its control account is the source of a large share of close work. The two are supposed to agree at every period end. When they do not, the difference is either a timing issue, a posting that bypassed the subledger and went directly to the control account, or an error, and each of those is investigated differently. Direct postings to a control account are worth restricting as a matter of policy, because they break the reconciliation by design.

During the close, the ledger goes through a defined sequence: subledgers are closed and their totals posted, accruals and deferrals are recorded, allocations and intercompany eliminations are run, reconciliations are prepared for every balance sheet account, adjusting entries are posted for what the reconciliations turn up, and then the period is locked so the reported numbers cannot move underneath the people relying on them. A ledger that stays open after reporting is a control weakness, because the statements no longer describe the ledger.

Two properties make a ledger auditable. Completeness, meaning every transaction is captured in the correct period, and traceability, meaning any balance can be decomposed to its postings and each posting to a source document. That second property is what an audit trail delivers, and it is what makes the difference between an entry a reviewer can approve in thirty seconds and one that takes an hour to substantiate.

Groups with multiple entities add layers rather than changing the model: separate ledgers per legal entity, functional currency by entity, translation at the consolidation layer, and elimination entries recorded somewhere that has to be reconcilable too. The consolidation is only as good as the individual ledgers underneath it.

Related terms: Chart of Accounts, Trial Balance, Journal Entry, Account Reconciliation

Related skills: Bank rec to GL, Trial balance integrity

Go deeper: Accounting Automation

Everything that closes a period is a comparison against the ledger. Adopt's agents post, reconcile, and tie back inside the systems you already run, so the ledger and its supporting schedules agree before anyone opens a workbook. Sign up free.