What is a Ledger? (2024)

A ledger provides a record of each debit and credit transaction across the lifespan of a company. Each transaction within the ledger is also known as a “journal entry.”

Businesses use ledgers to get a detailed view of their financial transactions for different periods of time, be that weeks, months, quarters, or years. The information contained in a general ledger is also what is used to create income statements, balance sheets, or other financial documents. Another key use of a ledger is to keep track of important balances that can inform business decisions such as how much to pay out to vendors or employees.

What are the key components of a Ledger?

Double-Entry Accounting

With a ledger, businesses must use double-entry accounting (or double-entry bookkeeping). Double-entry accounting records each transaction twice, as corresponding debits and credits. Double-entry transactions, also known as “journal entries,” are posted in two columns: debits on the left and credits on the right. The total of all of the different debit and credit entries must balance out. This method tracks not just cash on hand, but also the value of all of a company’s assets.

As an example, let’s say you run Bagel.co, a company that allows users to buy, sell, and trade bagels. Bagel.co moves funds between accounts that they operate on behalf of their customers. Customers 1-3 buy and sell bagels to each other, and cash out the balances of their accounts on your platform to external banks. Below is an example double-entry ledger of their transactions.

What is a Ledger? (1)

The key to double-entry accounting can be remembered as Assets = Liabilities + Equities. Using a ledger and tallying both sides of it helps with accuracy, because credits and debits should cancel each other out.

Chart of Accounts

The credit and debit transactions in a ledger are segregated into different accounts for different business uses. Simply put an account is a 'bucket' of value–or the balances a company needs to track. For instance, a business probably wants to know how much it has made in revenue, or how much it has spent on wages, or how much it owes to suppliers. Each of these balances would have their own accounts.

A chart of accounts (COA) is an index of all those different accounts within a company’s ledger. It is essentially a tool that provides a breakdown of all the company’s financial transactions by category and dictates how the transactions should be entered in the ledger.

A COA typically includes a name, a short description, and an identification code for each different account. A company’s transactions are then recorded throughout the year by debiting and crediting against these accounts.

Let’s look at a sample COA for a bagel shop:

What is a Ledger? (2)

What is the difference between a General Ledger and a Sub-Ledger?

The general ledger is the master chart of accounts where all business transactions are recorded. A sub-ledger, or subsidiary ledger, is a set of intermediary accounts linked to the general ledger that contain transaction information. There can be multiple sub-ledgers of a general ledger.

For larger companies, it may not be convenient to enter every single transaction in the general ledger because of the high volume of transactions. In that case, individual transactions are recorded in sub-ledgers and the totals are then transferred to an account within the general ledger.

Where a ledger shows a summary of the double-entry accounting at any given point in time, the sub-ledger records the details of the transactions shown in the general ledger. Additionally, a sub-ledger must balance in order to reflect the correct information regarding those transactions from the general ledger.

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What is a Ledger? (2024)

FAQs

What is a ledger in simple terms? ›

Meaning of ledger in English

a book or a computer document in which a company's accounts are recorded, especially the money it has spent and received: The loan appears not to have been entered in the ledger. ledger accounts/books/systems.

What is an example of a ledger? ›

Examples of common ledger accounts include: Asset accounts, such as cash, prepaid expenses, accounts receivable, and furniture and fixtures. Liability accounts, including accounts payable, accrued expenses, lines of credit, and notes payable.

What is the purpose of the ledger? ›

A ledger provides a record of each debit and credit transaction across the lifespan of a company. Each transaction within the ledger is also known as a “journal entry.” Businesses use ledgers to get a detailed view of their financial transactions for different periods of time, be that weeks, months, quarters, or years.

What does a ledger actually do? ›

Your Ledger device sends the signed transaction to your internet-connected device. Once you have signed the transaction on your Ledger device, it sends the signed transaction back to your internet-connected device via Bluetooth or USB-C cable. Since the transaction is already signed, it cannot be tampered with.

What is a ledger for dummies? ›

A general ledger records transactions and helps generate financial statements for investors, creditors, or even regulators. This information can help management make financial and data-based decisions.

Why is a ledger necessary? ›

Ledger is the backbone of business accounting because it keeps all records of all transactions in separate accounts. Towards the end of the accounting period, all accounts contain complete information on all related transactions. The ledger provides a comprehensive report of all transactions.

What are the 3 main ledgers? ›

There are three main types of accounting ledgers to be aware of:
  • General ledger.
  • Sales ledger.
  • Purchase ledger.

What is the difference between an account and a ledger? ›

This ledger provides complete details of a particular account in the general ledger. In short, the primary difference between an account and a ledger is that an account records a company's transactions, while a ledger is used to maintain an account.

What is considered a ledger? ›

A ledger, also called a general ledger, is a record of a business's financial transactions. It summarizes all the revenue and expenses of the business, plus the debts owed and assets owned. The transactions in a general ledger are organized into five main types; assets, liabilities, equity, revenue, and expenses.

What is a ledger good for? ›

A Ledger wallet is a cryptocurrency wallet made by Ledger, a company that makes physical cryptocurrency wallets that look similar to USB drives or other storage devices. Ledger offers users several hardware and cold wallet options and promises users that its wallets are safe and secure for use with crypto assets.

What is a general ledger for beginners? ›

A general ledger is used to record every financial transaction made by an organization and serves as the basis for various types of financial reports. It provides details about finances such as cash flows, assets, liabilities, inventory, purchases, sales, gains, losses, and equity.

Can I take money out of my ledger balance? ›

Withdrawing from your ledger balance is no different from a regular bank withdrawal. It involves accessing your account and using a chosen method to take funds out, such as ATM or electronic transfer. Just ensure the amount doesn't exceed your available balance to avoid issues.

Why is a ledger safe? ›

Ledger devices store private keys on a Secure Element chip, an industry-leading computer chip often used in bank cards and passports since it can withstand common attack vectors like side-channel attacks and glitching.

Is my money safe with ledger? ›

Your Ledger is protecting an encrypted copy of your 24-word Secret Recovery Phrase inside of it with military-grade cryptographic hardware, and remember that it's your job to make sure your 24-word Secret Recovery Phrase stays offline and is never entered into a computer, into a phone, or shared with anyone or any ...

How do you get cash from a ledger? ›

You can transfer your crypto to a supported exchange platform that offers fiat withdrawal options, such as Coinbase, Binance, Kraken, and others. These exchanges allow users to sell their crypto assets and withdraw the proceeds to their linked bank accounts.

What does ledger mean for kids? ›

A ledger is kind of like a diary, but for money. It's a book for keeping track of expenses, profits, and other financial matters. A ledger is an accounting journal used to keep track of money.

What is a ledger balance for dummies? ›

In order to calculate your ledger balance, add all the credits (deposits, reversals, etc.) that go through your account during the day to the opening balance. Then subtract all the withdrawals, transfers, and other debits from that figure. This will give you the end of day or ledger balance.

What are the three types of ledgers? ›

There are three main types of accounting ledgers to be aware of:
  • General ledger.
  • Sales ledger.
  • Purchase ledger.

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