As a business owner, you can use small business software and bookkeeping professionals to minimize your accounting responsibilities. However, you must still be able to comprehend your company’s financial data to properly make strategic business decisions. The general ledger is one of the most critical documents to understand. This guide will give you the information you need to interpret it, including what details it contains, its role in the double-entry accounting system, and some practical examples of how it works. What is a General Ledger? The general ledger is a foundational accounting document that contains a record of all your business’ activities. For each entry in your chart of accounts, it displays a sub-ledger documenting the details of every transaction affecting it, culminating in the account’s running balance. As a result, you and your accounting team will typically consult the general ledger whenever necessary to investigate the details of your business’ activities, transactions, and account balances. General Ledger Format Sub-ledgers within the general ledger are organized into groups based on the type of account they represent. Here are the categories, plus some examples of general ledger accounts that usually fall into each one: Assets - These are the resources with positive economic value that your business owns (Ex: cash, accounts receivable, and equipment). Liabilities - These are obligations with negative economic value that your business owes to other parties (Ex: accounts payable, credit card balances, and business loans). Equity - This is the difference between your business’ assets and liabilities. It usually consists of contributions from owners and investors plus any profits left in the company from previous accounting periods. Revenue - This is the income your business generates through its primary operations by selling products or services. You may also refer to it as sales. Expenses - These are the costs your business incurs through its day-to-day operations (Ex: direct labor, rent, advertising, and depreciation). The general ledger should present each group of sub-ledgers in the order they’re listed above. It’s the same order in which you’d encounter them if you were to read through the balance sheet and income statement. In every sub-ledger, there should be a record of all the transactions involving the underlying account to date. Each one should contain at least the following information: Date Description Transaction amount Account balance Of course, your general ledger’s appearance will ultimately depend on your personal preference and choice of software. For example, it may also contain details like a reference number or activity type for each transaction. Fortunately, you don’t have to worry about building or maintaining your general ledger by hand. Most accounting and bookkeeping software can connect to the accounts you use to facilitate transactions and automatically generate the document for you General Ledgers And Double-Entry Accounting The general ledger is a foundational document in the double-entry accounting system, the most widely accepted modern accounting method. It requires that all financial transactions affect at least two accounts and balance between debits and credits. Debits and credits refer to the left and right sides of journal entries. Journal entries are the records accountants use to document transactions and update their account balances. Debiting an asset or expense account increases its current balance, while crediting them decreases it. Conversely, crediting a revenue, liability, or equity account increases its current balance, and debiting them increases it. Here’s an example of a journal entry to record the purchase of $500 of office supplies using the funds in your cash account. DateAccount NameDebitsCreditsMarch 15, 2020Office Supplies$500 Cash $500 When you create a journal entry, you must update the general ledger to reflect the changes you’ve made to each account. In the example above, you’d increase your office supplies expense and decrease your cash account by $500. General Ledger Accounting Examples Let’s walk through some examples to help you understand how you’ll typically interact with your general ledger in practice. Say your business completes the following transactions in January with the company credit card: $75 for gas on January 8 $250 for supplies on January 15 $115 for utilities on January 25 On January 31, you receive a $2,500 payment for completing a project and use the cash to pay off your credit card balance. Immediately, you create the following journal entries to record the month's transactions. DateAccount NameDebitsCreditsJanuary 8, 2020Gas$75 Credit Card $75January 15, 2020Supplies$250 Credit Card$250January 25, 2020Utilities$115 Credit Card$115January 31, 2020Cash$2,500 Revenue$2,500January 31, 2020Credit Card$440 Cash$440 Subsequently, here’s what your general ledger entries would display, assuming you started the year with $2,500 in cash. General Ledger January 1 to January 31, 2020DateDescriptionAmountCurrent BalanceCash$2,5001/31/20Receive payment for project$2,500$5,0001/31/20Paid off credit card balance($440)$4,560Total for Cash$4,560Business Credit Card$01/8/20Refill gas tank for company car$75$751/15/20Purchase printer paper for office$250$3251/25/20Pay the office utility bill$115$4401/31/20Pay off the credit card balance($440)$0Total for Business Credit Card$0Revenue$01/31/20Receive payment for project$2,500$2,500Total for Revenue$2,500Gas$01/8/20Refill gas tank for company car$75$75Total for Gas$75Supplies$01/15/20Purchase printer paper for office$250250Total for Supplies$250Utilities$01/25/20Pay the office utility bill$115$115Total for Utilities$115 Perform Regular General Ledger Reconciliations The general ledger is one of the cornerstones of the double-entry accounting system. If yours is inaccurate, you'll inevitably have issues with your financial statements. Consider reconciling your general ledger to your bank and credit card statements on a monthly basis. Doing so regularly helps you identify and correct your mistakes before they pile up, ultimately saving you a lot of time and frustration at the end of each tax year.