General ledger explained: accounts, posting, review

What the general ledger is

The general ledger (GL) is the complete set of accounts in which a business records every financial transaction, organised by account: each asset, liability, equity, revenue and expense account shows its opening balance, every debit and credit, and a closing balance. It matters because the trial balance and the financial statements are produced directly from the general ledger balances.

Accountants call the general ledger the book of final entry. Transactions are first captured in books of prime entry, such as the sales day book, purchase day book, cash book and general journal, and are then posted to the ledger accounts. In a modern accounting system the posting is automatic, but the logic is unchanged from paper bookkeeping: every transaction is recorded twice, once as a debit and once as a credit, so the ledger as a whole always balances.

Journal, general ledger, subledger and trial balance compared

Four records are easy to confuse because they contain the same transactions viewed from different angles. The journal is organised by date, the general ledger by account, a subledger by customer, supplier, item or asset, and the trial balance is a one-line-per-account summary of the ledger at a date.

• Journal: chronological list of entries, each showing the accounts debited and credited, the amounts and a description. It answers what happened on a given day.
• General ledger: one account per line of the chart of accounts, listing all movements on that account with a running balance. It answers what is in an account and how it got there.
• Subledger: the detail behind a single general ledger account, such as the receivables ledger by customer, the payables ledger by supplier, the inventory ledger by item or the fixed asset register by asset.
• Control account: the general ledger account that holds the total of a subledger, such as trade receivables or trade payables.
• Trial balance: a list of every general ledger account with its closing debit or credit balance, used to prove total debits equal total credits and to prepare the financial statements.
• Chart of accounts: the structured list of accounts the ledger is allowed to use, with codes, names and types.

How posting to the ledger works, with an example

Posting means transferring each line of a journal entry to the ledger account it names, on the correct side. Take a small EUR business with EUR 20,000 in the bank at the start of the month. During the month it receives EUR 12,500 from customers, pays a supplier EUR 9,000, pays rent of EUR 2,000 and pays net salaries of EUR 6,000. Each of these is a journal entry with the bank on one side.

Posted to the bank account in the general ledger, the entries produce a running balance. Debits increase the bank account because it is an asset, and credits reduce it. The closing balance of EUR 15,500 is what should appear in the trial balance and, after reconciling items, what the bank statement supports.

• Opening balance: 20,000 debit
• Customer receipts: debit 12,500, balance 32,500
• Supplier payment: credit 9,000, balance 23,500
• Rent: credit 2,000, balance 21,500
• Net salaries: credit 6,000, balance 15,500
• Closing balance carried to the trial balance: 15,500 debit

Control accounts and subledgers in practice

A business with 400 customers does not want 400 receivable accounts in its chart of accounts. Instead the general ledger holds one trade receivables control account, and the customer detail lives in the receivables subledger. Every sales invoice, credit note and receipt updates both at once.

Worked example: the trade receivables control account opens the month at EUR 8,000. Sales invoices of EUR 15,000 are posted, customers pay EUR 12,500 and one credit note of EUR 500 is issued. The control account closes at 8,000 plus 15,000 minus 12,500 minus 500, which is EUR 10,000. The subledger shows customer A owing 4,000, customer B 3,500 and customer C 2,500, which also totals EUR 10,000, so the ledger and subledger agree.

When they do not agree, the usual cause is a manual journal posted straight to the control account with no customer attached, or a subledger document that failed to post. Many businesses therefore block manual postings to control accounts. The same discipline applies to payables, inventory, fixed assets, payroll liabilities and VAT.

GL codes and how to structure them

Each general ledger account has a code, often called a GL code, that sorts accounts in statement order and makes coding quick. A common pattern reserves ranges by account type: 1000 to 1999 for assets, 2000 to 2999 for liabilities, 3000 to 3999 for equity, 4000 to 4999 for revenue and 5000 upwards for expenses. Sub-ranges then group similar accounts, such as 1100 to 1199 for cash and bank.

The design mistake that makes a ledger unmanageable is using accounts to capture analysis that belongs in dimensions. An account for rent at each branch, each department and each project multiplies quickly. Better practice keeps one rent account and tags each journal line with a branch, cost centre or project. Reports then slice the same account any way management needs. Our guide on designing a chart of accounts covers numbering and dimensions in detail.

Two further account properties matter. Heading or summary accounts group others for reporting and should not accept postings, while posting accounts take entries. And each account should carry a type and a normal balance, which let the system place it on the balance sheet or income statement and flag balances on the wrong side.

Reading a general ledger report

A general ledger report, sometimes called a GL detail report or account transactions report, lists the movements on one or more accounts for a date range. Each line normally shows the date, the journal or document number, a description, the source (sales, purchases, payroll, manual journal), the debit or credit amount and the running balance. Opening and closing balances bracket the movements.

The most useful column is often the source. A revenue account whose movements come entirely from sales invoices is what you expect; a revenue account with a large manual journal on the last day of the year deserves a question. Drilling from a ledger line to the document behind it is how accountants and auditors test that balances are real.

Remember the difference between permanent and temporary accounts when reading opening balances. Balance sheet accounts (assets, liabilities and equity) are permanent: their closing balance at year end becomes next year's opening balance. Revenue and expense accounts are temporary: at year end they are closed to retained earnings, so each new year starts them at zero. A revenue account that opens a new financial year with a balance means the year-end close has not been run or was reversed. Our retained earnings guide shows the closing entries.

How to review the general ledger each month

A general ledger review is a structured look for balances and entries that do not make sense before the numbers are reported. It complements account reconciliations: a reconciliation proves a balance, while a review looks for what nobody thought to reconcile. The time needed grows with the number of accounts and manual journals, so schedule it into the close timetable rather than leaving it to spare moments.

• Scan the trial balance for balances on the wrong side, such as a credit balance on an expense or a debit balance on a payable.
• Compare every income statement account with the prior month and the budget, and explain movements above a set threshold.
• Check that suspense, clearing and unallocated accounts are at or near zero.
• List manual journals posted to control accounts, revenue and cash, and confirm each has support and approval.
• Look for entries dated after the period end, posted at weekends, or in round amounts just below an approval limit.
• Confirm that bank, receivables, payables, inventory, fixed assets, VAT and payroll accounts are reconciled.
• Check that intercompany and related-party balances agree with the counterparty.
• Record who reviewed the ledger, when, and what was followed up.

Errors the ledger will not reveal on its own

A balanced ledger proves only that debits equal credits. It does not prove that entries went to the right accounts, in the right period, at the right amounts. An invoice posted twice, a purchase coded to the wrong expense, or a sale omitted entirely all leave the trial balance in balance.

That is why the ledger needs reconciliations to external evidence (bank statements, supplier statements, stock counts), analytical review, and an audit trail showing who posted what and when. A posted entry should never be edited or deleted silently; it is corrected by a reversing or correcting entry so the history remains visible. Our guide on finding and correcting accounting errors lists the error types a trial balance cannot catch.

The general ledger in Skyline Nexus ERP

In Skyline Nexus ERP the general ledger is the Accounting module, found in the left menu under Fiscal Authority & Compliance (GL) as Fiscal Authority. Accounts are created under Chart of Accounts with a unique GL Code, an Account Type, English and Arabic names, and an Account Nature of Posting or Heading; only Posting accounts take entries. Control Settings include Is Control Account, Requires Cost Center, Requires Party and Allow Manual Posting, and a manual journal line is rejected when it breaks one of these rules. Each journal line can carry a cost centre, project and contact, and each journal header a business location, so branches and projects are dimensions rather than extra accounts.

Manual journals must balance before they save. Sales, purchases, payments, expenses, payroll and depreciation post their own journals in the background once their auto-post switches are on. A posted journal is reversed rather than deleted, and a journal created by a source document is changed by editing that document. Under Reports, the Ledger Reports group contains General Ledger, Sub-Ledger, Day Book and Audit Trail, and Data Verification compares the trial balance, GL transactions and POS transactions.

General ledger terms at a glance

These short definitions cover the vocabulary that appears in ledger reports and audit requests.

• Posting: transferring a journal line to its ledger account.
• Running balance: the account balance after each movement.
• Book of prime entry: the day book or journal where a transaction is first recorded.
• Suspense account: a temporary account for amounts that cannot yet be allocated; it should be cleared, not carried.
• Contra account: an account that offsets another, such as accumulated depreciation against fixed asset cost.
• Audit trail: the link from each ledger line back to its source document, user and time.
• Related guides: debits and credits explained, journal entries with examples, and trial balance to financial statements.