A general ledger is a set of accounts used in accounting to keep track of all the financial transactions of the company. All financial postings have an impact on the general ledger, whether or not they post to a sub-ledger, such as accounts receivable or cash. The values in the general ledger accounts drive the information used to generate all the financial statements.

In accounting, the general ledger accounts are created first. All similar accounts are numbered in a series, based on what the accounts are used for. This numbering sequence provides a quick reference for the purpose of the accounts and is widely used.

Sub-ledgers are created to keep track of the transactions within a specific type of transaction. Common sub-ledgers include accounts receivable, accounts payable, cash, inventory, purchasing and sales. The multiple daily transactions are recorded within these sub-ledgers. At the end of the period, the final value is posted into the general ledger.

With the advent of computerized accounting systems, many companies have very large lists of general ledger accounts. These accounts are set up to automatically feed into the appropriate financial statement report. Reports can be run to provide constant updates on the financial position of the firm.

The general ledger was originally a ledger book used to manually record the transactions. The system of double entry accounting is used around the world for all business accounting. Each entry has two parts, a debit and a credit.

Each entry must balance to zero. The concept behind this is that there is always a positive and negative value to every transaction. Accounting systems were the first process to become computerized, due to the strict rules and dependencies built into the double entry accounting process.

The general ledger is comprised of five types of accounts: assets, liabilities, owner's equity, revenue and expense. When a transaction occurs, it always affects two of these account types. This is the reason why the general ledger accounts are used to create the financial statements.

A list of all the accounts in the general ledger is called a chart of accounts. The account numbers are usually five to six digits long, with a typical chart of accounts having between 20 to 30 accounts.

When installing any computerized accounting software package, setting up the general ledger chart of accounts is the first task to be completed. All accounting software packages come with a standard chart of accounts, with multiple options for a wide range of industries. Investigate the account list carefully and select the accounts that meet your needs.