A ledger in accounting is the record of every account a business keeps, with each transaction posted to the accounts it affects and a running balance for each one. The general ledger is the full set: cash, what customers owe you, what you owe, equity, revenue and every expense category. Your profit and loss statement and your balance sheet are both built from it.
If you use QuickBooks, you already have a general ledger. You just may never have opened it.
Journal first, then ledger
In paper bookkeeping a transaction got written down twice, first in a journal in date order, then posted to the ledger page of each account it touched. So the journal is sorted by date and the ledger by account, which is the view you actually want when a balance looks off.
Software does both in one step. Record a bill or a deposit in QuickBooks and it posts to the ledger accounts right away, and you can still open any single transaction to see every account it hit.
The five types of accounts in a ledger
Every account in the general ledger falls into one of five groups, and the list of all your accounts is called the chart of accounts.
- Assets, meaning what the business owns or is owed: cash in the bank, accounts receivable, inventory, equipment.
- Liabilities. Credit card balances and loans, plus money you are holding for someone else, like sales tax collected but not yet remitted or payroll taxes withheld from employees.
- Equity, the owner's stake, including money put in, draws taken out and profit kept in the business over time.
- Revenue from sales and services.
- Expenses, from rent and software down to fuel and wages.
The first three show up on the balance sheet, the last two make the P&L. How finely you split them is a judgment call, and it decides how much your reports can tell you. A boutique fitness studio in Lake Nona came to us because its financial statements were not accurate enough for the owner to get a bank loan to expand. We rebuilt the chart of accounts, connected their Mindbody booking software to QuickBooks Online and set up monthly P&L and balance sheet reporting. Those verified financials secured a $75,000 expansion loan. Building a custom chart of accounts is also part of our QuickBooks setup work.
Double-entry: why every transaction hits two accounts
Business bookkeeping is double-entry. Every transaction affects at least two accounts, and total debits always equal total credits.
Buy a printer with the business debit card and your equipment or office expense account goes up, while checking goes down by the same amount.
People sometimes search for this as "double book accounting." It has nothing to do with keeping two sets of books, which is a different and much worse idea.
Debits and credits confuse a lot of owners because the words sound like good and bad. They are only the two sides of an entry. A debit increases an asset or expense account and a credit increases a liability, equity or revenue account, and QuickBooks picks the side for you, which is why plenty of owners never see the words outside the journal entry screen.
The general ledger and the subsidiary ledgers
Some accounts carry too much detail for one line. Accounts receivable is the usual example: the general ledger shows one total for what all your customers owe, and a subsidiary ledger breaks it out customer by customer. The two should always tie. Accounts payable works the same way for vendors, and inventory can be tracked item by item under one inventory account.
When those drift apart the error goes straight into your reports. A custom metal fabrication shop in Orlando had cost of goods sold tracking that did not hold up and a messy raw-materials inventory in QuickBooks Online, so its P&L was distorted. We restructured the inventory setup and linked their job-costing software, which corrected a $22,000 inventory valuation error and gave the owner margin reporting per production run.
The trial balance, the ledger's own check
A trial balance lists every account with its ending balance, debits in one column and credits in the other, and the two columns should total the same. If they don't, something was posted to only one side.
Balanced doesn't mean correct, though. A fuel receipt posted to the wrong expense account still balances, and so does a deposit entered twice. That is why bookkeepers also reconcile the books against bank and credit card statements every month, and our walkthrough on how to reconcile an account in QuickBooks Online covers that part. QuickBooks Online has both a General Ledger report and a Trial Balance report in its standard reports.
What an owner actually does with the ledger
Honestly, not much week to week. Keeping it clean is the bookkeeper's job, and our post on what a bookkeeper does covers that monthly routine.
It matters to an owner the moment a number looks wrong. Say office supplies on the P&L look twice what you expected. The general ledger detail for that one account shows every transaction behind the total, dated, with the payee, and you can open any line to see the original entry.
Reading the reports built on top of the ledger is its own skill, and our guide on how to read your P&L and balance sheet picks up from there.
Keeping the general ledger accurate month to month is the core of our monthly bookkeeping service in Orlando.