Understanding the general ledger

Article • 4/10/2026 • 3 min read

The accounting process traditionally focuses on two types of books: the journal, a chronological record of business transactions; and the general ledger, a complete collection of accounts and their debits and credits.

When a business transaction A transaction such as an accounts receivable, accounts payable, or payroll transaction. A business transaction consists of at least one debit and at least one credit, and total debits must equal total credits. occurs, an accountant makes an entry in a journal A chronological record of business transactions. Made2Manage has four subledgers (accounts payable, accounts receivable, order costing, and payroll) that are the equivalent of journals. Each entry shows:

The transaction date The date a business transaction occurs.
The description of the transaction.
Each account (Also called general ledger account) 1. An accounting record that classifies and summarizes the increases and decreases of each asset, liability, and shareholder equity item. 2. The means for tracking users and keeping their actions separate in Made2Manage. Auser logs into an account using his or her username and password. to debitAn increase in an asset, cost of goods sold, or an expense account. A decrease in a liability, shareholder equity, or a revenue account. and the amount(s) to debit.
Each account to credit and the amount(s) to credit.

Later, the accountant posts the transaction’s debits and credits to the general ledger (GL) A set of numbered accounts that record all accounting transactions. The general ledger typically has accounts for revenue, cost of goods sold, expenses, assets, liabilities, shareholders equity, and revenue. Each debit or credit requires a separate posting to the appropriate general ledger account. Each posting shows:

The date of the original transaction.
The description of the transaction.
The page number on which the entry appears in the journal.
The amount debited or credited.
The account’s new balance.

At the end of an accounting period, and always before printing financial statements, the accountant must make adjusting entries to ensure the proper matching The concept that expenses incurred in generating revenues must be deducted from there venues they generate during the accounting period. of revenues and expenses. (The accountant must deduct expenses incurred in generating revenues from the revenues they generated during the accounting period (Also called period) A period of time for which to generate financial statements; generally one month, one quarter, or one year.) Adjusting entries represent financial activity that has occurred but has not yet been recorded.

At the end of an accounting period, the accountant makes adjusting entries, prepares financial statements, and then closes the period. To do so, the accountant makes closing entries that transfer the balances in the temporary revenue Inflow of assets resulting from sales to customers. and expense accounts to the permanent shareholder’s equity account. Closing entries transfer *net income Revenues minus expenses. or loss to shareholder’s equity. They result in a zero balance in each revenue and expense account so that the accounts can accumulate a new balance in the next period.