A ledger is a bookkeeping device used to record financial transactions. Transactions are recorded in chronological order and are categorized according to type. The ledger provides a complete record of all financial transactions that have taken place within a given period. The ledger is the primary source of information for the preparation of financial statements. Financial statements provide an overview of a company’s financial position, performance, and cash flow. The ledger is also used in the analysis of financial data and in the making of financial decisions.
The ledger is divided into two sections;
The general ledger contains all of the information pertaining to a company’s financial transactions. The general ledger is further divided into accounts. Accounts are classified according to their nature. The most common types of accounts are;
Asset accounts represent the resources of a company. Liability accounts represent the claims of creditors against a company. Equity accounts represent the ownership interests of shareholders in a company.
The subsidiary ledger has the detail record of the receivable and payable accounts. it contains specific information about certain types of transactions.
The ledger is the foundation of the double-entry bookkeeping system. In the double-entry bookkeeping system, each financial transaction is recorded in two accounts. The debit side of the ledger is used to record the asset side of the transaction, and the credit side of the ledger is used to record the liability side of the transaction. The double-entry bookkeeping system provides a check on accuracy and ensures that the books are in balance. The system also provides a way to track the flow of funds through a company. The ledger is an important tool in the analysis of financial data. Financial ratios and other analytical techniques are used to examine the data in the ledger in order to make informed decisions about a company’s financial affairs.