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What is a General Ledger / Nominal Ledger?

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An important element of business accounting is the general ledger.This will be something that will be used by all businesses that use a double entry bookkeeping system. The information found in the general ledger is used for creating financial statements and it includes all transactions.

So What is a General Ledger?

A general ledger differs from other types of ledgers because it contains every financial action of the business; a sub ledger might only include certain transactions such as accounts receivable. A general ledger will most often contain information about both fixed and current assets. There will also be exact details of revenue, liabilities, gains and losses, and expenses. It is standard to divide the whole ledger into two different sections; debits and credits.

The General Ledger and Sub Ledgers

As we have already mentioned above as well as the general ledger those companies who use double entry bookkeeping will also have sub ledgers. These sub ledgers will be numbered using a common system with each number referring to a particular type of financial action; this makes it a lot easier to keep track of them. The sub ledgers will deal with such transactions as receivables, purchasing, sales, payments, and sales – all this information will also be available in the general ledger.

The Use of the General Ledger

Before computers the general ledger was an actual book that a company would use for bookkeeping. Using the double entry bookkeeping method the debits and credits would be faithfully documented. Keeping these books by hand could be a real chore and this is why it was usually left to the experts. Bookkeeping is actually quite a demanding task (especially in large company) because all the entries must balance to zero; this is achievable because there is a negative and positive element to every transaction. There are five types of accounts in the general ledger; revenue, expenses, assets, liabilities, and owner’s equity. Any transaction that occurs is always going to affect two of the accounts on the general ledger. It can all get a bit complicated; in fact some businesses have a whole team of accountants looking after these ledgers to ensure that everything is in order.

Computers have been a great boon to bookkeeping and they have revolutionized the way things are done. The elements are all the same, but now the work can be done with a lot less effort; in fact software now means that many small businesses are able to take care of their own general ledger. In most situations though it is still necessary to have a competent bookkeeper to manage everything because even with computers it is possible to mess up the accounts – this is why accountants have no fears of being replaced by computers in the foreseeable future anyway.

It is something that anyone involved in business is sure to come across at one time or another. Double entry bookkeeping is the most popular way of keeping accounts and the general ledger is a vital component of this.

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Meet the Author

Anthony Carter currently resides in Fife, Scotland with his wife Lisa, and their three wonderful children. As a senior editor for various publications, if he's not reading and writing, you would find him photographing and traveling to some of the most far-flung locations around the world.

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