A Complete Guide to Accounting Ledgers

Whether you’re filing taxes or creating financial statements, it’s important to have access to accurate accounts for reference. This is where the accounting ledger book comes into play. It’s a handy resource listing all of your journal accounts as debits and credits. We’ll explore the ledger meaning in accounting below, as well as why it’s so important to any business.

What is an accounting ledger?

The ledger meaning in accounting refers to a book where businesses record all the information needed to prepare financial statements. An accounting ledger book includes multiple accounts taken from journal entries. While accounting journals are where you first record transactional details, these are classified and summarized in the ledger as an orderly list of debits and credits. Because it’s where the details are recorded for a second time, it’s also known as the second book of entry.

So, what type of information is included in the ledger? Everything from assets and liabilities to revenues, expenses, and equity. Accounting ledgers might be recorded by hand in a written format, but it’s more common for them to take the form of electronic records generated by accounting software.

There are three main types of accounting ledgers to be aware of:

1. General ledger

2. Sales ledger

3. Purchase ledger

The sales ledger represents accounts receivable, and the purchase ledger shows accounts payable. However, both are also represented in the general ledger, making it the most important book for accounting purposes. Recording transactions in multiple ledgers also serves as a control for accountants. For example, when money is received by a business, the transaction would be recorded both in the sales ledger as well as in the sales ledger control account contained in the general ledger. In this ledger account example, these should be identical entries to maintain balance.

Types of ledger accounts

There are several different types of accounts that would be included as part of the ledger:

• Asset accounts: prepaid expenses, cash, accounts receivable, assets, and cash

• Liability accounts: lines of credit, accounts payable, debt, and notes payable

• Revenue accounts

• Expense accounts

• Equity accounts

• Profit and loss accounts

Role of an accounting ledger vs. journal

To better understand the purpose of accounting ledgers, it’s helpful to understand how they differ from journals. An accounting journal, also called the book of original entry, is where financial transactions are first recorded. The details are then summarised into a T format within the accounting ledger book. A T-shaped ledger entry allows you to show debits on one side, and credits on the other. The details move on from the ledger to create a trial balance, and finally show up on the balance sheet and income statement.

Another difference to be aware of is that journal transactions are recorded in chronological order, while ledger transactions are organised by account type. Ledger accounts must be balanced according to the double-entry method of bookkeeping. 

How to begin general ledger accounting

To create an accounting ledger using the double-entry bookkeeping method, you’ll need to record each transaction into a minimum of two ledger accounts. The entries take the form of a T-shape as described above, with one column for debits and one for credits. Here’s a step-by-step ledger account example:

1. Create a separate ledger for each account, all of which will be compiled at the end into your general ledger.

2. Divide each document into columns for debits and credits. Leave space for opening and closing balances.

3. Transfer journal entries into their related accounts. For general ledger accounting, related debits and credits should be placed side by side in the columns. This makes it easy to calculate the balance.

4. Update your ledgers when there are changes to the original transactions or journal entries.

5. Combine your accounts to create a general ledger. This will be organised by type of account, rather than transaction date.

6. Create a trial balance by summing up the credits and debits.

Finally, you can use the trial balance totals to compile your business’s financial statements. This includes both the balance sheet and income statement.

It’s well worth preparing a ledger to keep track of your transactions and ensure that credits and debits are in balance. If the totals don’t match up, it’s time to refer back to both your original journal entries and accounting ledgers to discover errors or discrepancies.

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