What is the purpose of a general ledger?

The purpose of a general ledger is to serve as a complete record of all financial transactions over the life of a company. It is integral to the accounting system because it systematically organizes all financial data, allowing for a comprehensive tracking of assets, liabilities, equity, revenues, and expenses. This detailed record is essential for preparing financial statements, ensuring compliance with accounting standards, and providing insights into the financial performance and position of the company.

By maintaining a precise record of all transactions, the general ledger facilitates effective internal controls and accurate reporting, which are crucial for management decisions and external financial reporting. This comprehensive nature sets it apart from other financial records, such as sales journals or customer order tracking, which focus on specific areas of the business rather than encompassing the entire financial activity.