What is a general ledger

What is a general ledger? The general ledger is the backbone of any accounting system which holds financial data for an organization.
Until the 1970s and 1980s, recording entries manually in big ledger books, was the way to go! You would have separate subledger books, such as payroll, cash, inventory, receivables, and many others depending on the type of company. From each of these subledger books, summary amounts would be transferred manually into a central place called the general ledger. As you can imagine, due to the manual nature of the process, this process is prone to errors like writing 51 instead of 15.
Today’s enterprise resource planning systems are a lot less manual, and the closing cycle tends to be a lot faster, but the general idea of subledgers and general ledger is still the same. For example, in an ERP system like SAP, original documents are registered in the accounts receivable subledger by customer account, and in the accounts payable subledger by vendor account. The amounts posted in the subledger are then transferred from the subledger to accounts in the general ledger. Subledgers generally hold a lot more detail than the general ledger.
Compared to the manual process of recording entries, computerized systems have the advantage of validation rules that can prevent a user from posting if a journal entry is not balanced. This can save a lot of time “downstream” in the accounting process.
Here’s how that process works all the way from recording individual transactions to preparing financial statements. Transactions based on source documents are recorded in the appropriate subledger (payroll, cash, inventory, receivables, payables, fixed assets, etcetera). The subledger activity is then posted as debits and credits to the appropriate accounts in the general ledger. The listing of the account names is called the chart of accounts. Getting a transaction into the general ledger can be done through a subledger, but also through a manual journal entry directly into the general ledger. The extraction of account balances is called a trial balance. The purpose of the trial balance is to ensure that the value of all the debit value balances equal the total of all the credit value balances, and that the individual balances per account or per group of accounts makes sense.
If an error is found in the trial balance, the finance team goes through a process to rectify errors. Some of these errors may be very easy to correct, others might take a substantial amount of analysis. Is there an error in the general ledger itself? Is there an error in how the data from the subledger is posted in the general ledger? Or is there an error in how the data was recorded in the subledger, or any of the manual journal entries? Or in the source documents themselves? Find the error, and correct it.
Once the trial balance is deemed accurate, the next step in the process can be taken: preparing the financial statements (income statement, balance sheet, cash flow statement). Using the financial statements, you can connect the financial numbers to the operational reality, by calculating financial ratios and analyzing the trends.
The general ledger is the backbone of any accounting system. It is the central repository for accounting data transferred from all subledgers. Now that you understand how the general ledger works, you having taken another step to master #accountingbasics
Philip de Vroe (The Finance Storyteller) aims to make strategy, finance and leadership enjoyable and easier to understand. Learn the business and #accounting vocabulary to join the conversation with your CEO at your company. Understand how financial statements work in order to make better investing decisions. Philip delivers #financetraining in various formats: KZbin videos, classroom sessions, webinars, and business simulations. Connect with me through Linked In!

[@TheFinanceStoryteller]

Enjoyed the video? Then subscribe to the channel, and watch my video on how to prepare closing entries at the end of the accounting year: kzbin.info/www/bejne/eYnMfH-ql5ynp6s

[@delayed6371]

Man, I’ve been using SAP for about 2 yearsin TAX, and did not understand the ledgers. Now that I am in fixed assets, it got even harder. This video helped me understand everything now and I can calm down. Thank you so much

[@TheFinanceStoryteller]

Wow. Great to hear! It's good to know that my videos have real-life impact. 🙂

[@paulwhite1040]

Started on a course 2 weeks ago... Ledgers have bended my brain so I came here to see if it helped

[@Zane-It]

I found out that many tribes in the old west were sold used ledgers books with actual data written in them as a trade item. I had no idea what a ledger book was, so I looked it up and found this video.

[@TheFinanceStoryteller]

Thanks for sharing that! I was not yet aware of that historical fact.

[@Zane-It]

@@TheFinanceStoryteller yeah they would draw pictures of the many wars they fought in them as a form of record keeping.

[@sergiocampos7613]

A Very useful video indeed! I am attending Penn Foster College in their Accounting program and this explains it thoroughly, thanks 🙏

[@TheFinanceStoryteller]

Glad it was helpful, Sergio!!! Hope you will find many more useful videos on my channel, for example in my Accounting 101 playlist kzbin.info/www/bejne/mGqWfHWjmL2UpKs or the intermediate accounting playlist kzbin.info/www/bejne/onPZn4adfqyJpLc Please subscribe, and share the channel with your fellow students!!! 🙂

[@mcbc4]

This was so clear! I wish I was able to watch this, 10-15 years ago!

[@TheFinanceStoryteller]

“The best time to plant a tree was 20 years ago. The second best time is now.” - Chinese Proverb ;-)

[@Huzaifa-or9sn]

Plz don't stop posting videos , u can help me a lot in my acca journey as i am a beginner❤ Also in this video , i think the example of putting info of cash and other accounts to general ledger was somewhat missing or not highlighted ❤

[@TheFinanceStoryteller]

I will try my best to keep posting, it's been on and off a bit in the past few months due to other commitments. Thanks for the feedback on the video. Have you checked out the other videos in the Accounting 101 playlist: kzbin.info/www/bejne/mGqWfHWjmL2UpKs&pp=gAQBiAQB

[@ifyouloveChristyouwillobeyhim]

Great video. Simple. Concise. Actually focuses on answering the question. Thank you!

[@TheFinanceStoryteller]

Nice to hear that! Thank you very much for watching and commenting!!!

[@lediiiii6468]

Thank you soo much I'm writing about this tom... I feel relieved 😌

[@TheFinanceStoryteller]

You're so welcome, Naledi!

[@heatherwoods296]

this was awesome thankyou for making everything so clear and concise and easy to understand :)

[@TheFinanceStoryteller]

You're very welcome, Heather! 😊 Thank you for watching and commenting.

[@janetdsouza1518]

Thanks a ton ! I understood things clearly now.

[@TheFinanceStoryteller]

Wonderful to hear that, Janet! :-) Happy to help.

[@DCWilliam24]

Just what I was looking for. Thanks!

[@TheFinanceStoryteller]

Great! Very happy to hear that. :-)

[@johnnymooney7652]

Thank you so much! Great video!

[@TheFinanceStoryteller]

You're very welcome! Great to hear that. Please subscribe, and spread the word!

[@aruva8995]

Great explanation.thank you

[@TheFinanceStoryteller]

Glad it was helpful!

[@MrWickedSalsa]

Great !! So easy to understand. Can you please also create videos for: - accruals - journal entries ? :D I would really appreciate it :D

[@TheFinanceStoryteller]

Thank you! Lovely to hear that. Here's the link to my video on accruals kzbin.info/www/bejne/onPZn4adfqyJpLc and my video on debits and credits explained kzbin.info/www/bejne/pF7PdJdpib90bq8

[@TheFinanceStoryteller]

Added a new video with a complete guide of adjusting entries in accounting this week: kzbin.info/www/bejne/a2imhIdslLenjc0

[@nrgaurprometheus]

Great video! really helps in understanding the concepts with clear picture. Is it possible for you to make video on creating excel sheet models for Sub Ledgers and General Ledger - How they work internally when transactions are posted etc. Thanks in advance!

[@TheFinanceStoryteller]

Thank you, Navendu! Happy to hear the video was helpful. Regarding Excel sheet models for sub and general ledger: that's not really my area of expertise, so I cannot help with that.

[@andonii46]

Thanks a lot for the video! I have one question: Why a company would have several G/L Accounts?

[@TheFinanceStoryteller]

You want to record transactions at a meaningful level of detail. For the income statement, you need one or more revenue accounts, and many different expense accounts. Same story for the balance sheet: various GL accounts for different types of assets, liabilities and equity. Have a look at the related video on debits and credits for some examples: kzbin.info/www/bejne/mGqWfHWjmL2UpKs&pp=gAQBiAQB

[@WhatTheUmair]

Thank you for making it easy :)

[@TheFinanceStoryteller]

You're welcome! I enjoyed researching and writing this video. I consider it part of a series on fundamental concepts like the accounting equation, trial balance, etc. Enjoy!

[@Roblox_gameanya]

I’m a ninth grader

[@mrG2x]

Great video bro

[@TheFinanceStoryteller]

Thanks bro!

[@mrG2x]

@@TheFinanceStoryteller thank you

[@konstancyja82]

Great one, once again!!!

[@crelys]

Good video

[@TheFinanceStoryteller]

Thank you!!! :-)

[@user-zo1yd9ub5v]

Can you provide examples like do one complete example for a perfect understanding

[@TheFinanceStoryteller]

Thank you for the suggestion, I have added it to my list of potential video topics. In the meantime, my video on how to post five types of adjusting entries might be useful for you: kzbin.info/www/bejne/a2imhIdslLenjc0

[@zaracheung4913]

Is that a thing called books of original entry? Is it related to general ledger? Thankq

[@TheFinanceStoryteller]

Hello Zara! I think "books of original entry" are the same as what I call "subledgers" in this video. Here's a description I found in a search: "Books of original entry refers to the accounting journals in which business transactions are initially recorded. The information in these books is then summarized and posted into a general ledger, from which financial statements are produced."

[@zaracheung4913]

Thanks! And were there vids abt depreciation, allowance for doubtful accounts, valuation of inventory? 🙏

[@TheFinanceStoryteller]

@@zaracheung4913 Of course! :-) Depreciation explained kzbin.info/www/bejne/bIS8aaZnlLR4qNE Accumulated depreciation kzbin.info/www/bejne/n4DHdomLiJeSnMU Bad debt kzbin.info/www/bejne/p2i6maWVdpmXqKc Asset impairment kzbin.info/www/bejne/ooiwdZeqfatnkLc FIFO vs LIFO inventory valuation kzbin.info/www/bejne/jJrGnJquocadha8 Enjoy! Let me know what you think!!!

[@princejag]

Can you make a video on complicated "rectification of errors."

[@TheFinanceStoryteller]

Thank you for the suggestion, Jagadeesh! That is a topic that seems to get a lot of search traffic. Let me investigate what I can say about it.

[@mrG2x]

🔥🔥🔥

[@maggiecameron9902]

Can you show can me a bankaccount and ledger please

[@TheFinanceStoryteller]

I don't have a "dedicated" video on that, but the first part of my video on suspense accounts covers some of it: kzbin.info/www/bejne/bZCmc6COmK94aLs

[@kaurie1234]

Does our general ledger consist of transactions recorded that have occurred and been PAID for or only transactions that have occurred?

[@TheFinanceStoryteller]

Occurred for sure, can be paid or not yet paid.

[@bonnieljaysantiago5530]

Can i use this for may reporting in accounting general ledger grade 12

[@TheFinanceStoryteller]

Hello! Yes, I would guess so, as long as you mention/quote the source.

[@clayoquotwild3142]

thank

[@princejag]

riveting.

[@TheFinanceStoryteller]

Thank you very much! :-)

[@TheFinanceStoryteller]

@Nawaf Saeed Please tell your friends, colleagues, fellow students, etc. :-)

[@konstancyja82]

@Nawaf Saeed Cant agree more, its like making a study in half time....

[@ngunitv]

General ledger acounting/ngunitv

[@umesh940]

Great! Keep on working hard. Let me know if I can help anyhow by contributing anything out of love.

[@TheFinanceStoryteller]

Thank you very much. I am always on the lookout for new topics that I can cover, please send me a list of finance and accounting topics that you would find helpful. I am trying to provide account details, but that comment seems to get automatically deleted right after posting. Can you contact me through Linked In, or the address for business inquiries in the "About" tab of the channel?

[@floridshaeeb3451]

Are nominal ledger and general ledger same thing?

[@TheFinanceStoryteller]

Hello Salman! I am not familiar with the term "nominal ledger", so can't help you there....

[@floridshaeeb3451]

@@TheFinanceStoryteller control account?

[@TheFinanceStoryteller]

Have a look at this video: kzbin.info/www/bejne/bZCmc6COmK94aLs

[@loganyang619]

KZbinr is a German?

[@TheFinanceStoryteller]

Very close, Logan! I am Dutch actually. 😊 My German friends often tease me that Dutch sounds like German, but with somebody having a throat disease. 😂

[@willgordon5737]

You jumped to HR, PATROLL, CASH LEDGERS what is that? This video confused me further down thumbs down to this video

[@TheFinanceStoryteller]

Hello Will! My apologies if that part went too fast. Payroll is the system where you keep track of employee contracts, payslips, etc. The cash ledger is where you keep track of the movements in your bank account(s) and/or the physical cash in the till. Each of these (and other) subledgers serves a specific purpose. The general ledger pulls everything together so that you can look at your overall financials. Before you put a thumbs down to a video, feel free to ask clarifying questions!