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investing-basics

What is a Ledger?

Matthew Levy
Matthew Levy

A ledger is a record of all the transactions that a company keeps to create its financial statements, namely income statement and balance sheet.¹ The categories in a ledger are classified as revenue, expense, assets, liabilities, and equity. Details like date, reference number, debit/credit, and other information are mentioned in a ledger.

What are the types of ledgers?

Unlike a journal, a ledger does not have a very detailed accounting procedure. Ledgers also only record the entries under specific heads. Broadly, ledgers can be classified as:

  1. General Ledger: This is the company's main or final ledger that is reset at the beginning of each financial year. It can be considered as an aggregation of all the sub-ledgers.
  2. Sub-Ledger: A company can create several sub-ledgers that serve as an input for the general ledger. This helps in recording the data more efficiently. Any discrepancies can be resolved more quickly if sub-ledgers are created to manage accounting information. Some of the different types of sub-ledgers are sales, purchases, receivables, and payables.²

A company can create a separate ledger for a particular business or a specific account. Such ledgers keep track of the expenses incurred within each account and can be flagged when any misappropriations are observed.

Example

St. Pierre is the leading manufacturer of boxing gloves in the country. He makes a purchase of $10,000 for his raw materials. The entries in the ledger would be as follows:

Both entries are made under the Asset category in a general ledger, and it can be seen that the account balances, e.g. debit equals credit.

Sources

  1. How To Build a Business General Ledger. The Balance.
  2. A Complete Guide to Accounting Ledgers. GoCardless.

Please note that this article is for educational and informational purposes and is believed to be accurate and reliable as of posting date but may be subject to change. The example above is hypothetical and is for illustrative purposes only. Alpaca does not provide investment, tax, or legal advice. Please consult your own independent advisor as to any investment, tax, or legal statements made herein.

Securities brokerage services are provided by Alpaca Securities LLC (“Alpaca”), member FINRA/SIPC, a wholly-owned subsidiary of AlpacaDB, Inc. Technology and services are offered by AlpacaDB, Inc.

This is not an offer, solicitation of an offer, or advice to buy or sell securities, or open a brokerage account in any jurisdiction where Alpaca is not registered (Alpaca is registered only in the United States).

investing-basics

Matthew Levy

Matthew Levy is a Chartered Financial Analyst (CFA) designation holder, a former portfolio manager for $600+ MM in assets, and started his own business writing financial analysis for clients worldwide