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A ledger is a book or computer file used to input accounting records. It usually lists the debits and credits associated with the entity for which the transactions are being recorded. Ledgers were traditionally on paper and often entered in bound books. With the start of the computer age, electronic versions became more common.
There are three common types of ledger: general, purchase, and sales ledgers. Often all three of these are used together. The general ledger is the most elaborate, while purchase and sales ledgers record the transactions of only creditors and customers respectively.
The general ledger is typically organized by the five different kinds of accounts: assets, liabilities, revenue, expenses, and owner’s equity. Some general ledgers will also show gains and losses. It uses a style of input known as double-entry bookkeeping. This means that if something is taken away from one account then it must be added to another. The standard format is for the debit entries to appear in a column on the left side and the credits on the right.
A purchase ledger tracks all amounts that are paid and owed to a credit supplier. This can be one book with several categories or a series of books so that there is one for each supplier. Common entries include information from invoices and credit memos. The amount owed to the supplier is the balance, also known as accounts or trade payable.
The sales ledger tracks credit customer, or debtor, accounts. This record is frequently referred to as accounts or trade receivable. The balance of this account is the amount due from credit customers. These kinds of transactions are recorded as assets. Sales ledgers are frequently used to determine how much is owed by customers at month-end or to create sales reports.
Ledgers typically serve as a permanent record for all financial transactions of an entity. They are often used for the generation of financial statements each reporting period. These records can also be useful for researching past issues. Having accurate ledgers is not only best for the well-being of the entity, but also a legal necessity.
Computer ledgers come in different formats, depending on the needs of the entity. Small, simple operations can often use spreadsheets to track accounts. Larger organizations will often use accounting software. This can be a mass-market product, a customized program, or software that is developed especially for the company.
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