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The advantages of a general ledger

General Ledger Accounts: How it can help your business bookkeeping system

Are you using a bookkeeping system for your business? If so, you may be wondering what a general ledger account is and how it can help you.

A general ledger account is a record of all financial transactions within a company. By tracking these transactions, you can maintain an accurate record of your finances and make better decisions about allocating your resources. This blog post will discuss how a general ledger account can benefit your business bookkeeping system.

What is a GL account, and what does it represent in financial statements?

A GL account is a general ledger account. It’s a record of all the business financial transactions that have taken place between a company and its creditors, suppliers, employees, and shareholders throughout a fiscal year.

These records are generated through the Chart of Accounts (COA). The COA is a list of accounts with details specifying the purpose of the transaction and where it’s coming from. You then use the specific list of transactions to categorize income and expenses in your accounting software which will then live in the General Ledger account.

GL accounts help prepare an organization’s financial statements, and each balance corresponds to one line item on the income statement, balance sheet, or cash flow statement. General Ledgers provides information needed to prepare these reports and verifies account balances by using the trial balance. The balance in each GL account is carried forward to the next accounting period and represents the business’s amount of money spent or received.

For example, accounts receivable would be included in a company’s balance sheet as assets and represented as a debit (increase) in the corresponding GL account.

How are GL accounts used in bookkeeping to track business expenses and revenue?

Business owners can use General Ledger accounts in bookkeeping to track business expenses and revenue using debits and credits. When a business spends money, the expenditure is recorded as a debit. When the company earns money, the income is recorded as a credit. The total debits and credits must equal zero for the books to balance.

GL accounts are important because they provide a clear and concise way of tracking financial transactions. You can assign unique numbers to each account to help further track transactions, and this set of unique numbers can then follow the account’s balance throughout the year. By monitoring the balances of GL accounts, businesses can get a clear picture of their financial health.

General Ledgers can also track specific costs, such as advertising, office supplies, salaries, and income associated with revenue from sales or consulting fees. By separating each transaction type, General Ledgers allow businesses to generate reports to see what is working for the company and what isn’t. This helps track the most important details needed in running a successful business.

Functions of General Ledger

The benefits of using General Ledger accounts in your business’ bookkeeping system

The first benefit is that General Ledger accounts provide an accurate and complete financial picture of your business. By recording all of your company’s transactions in a single place, you can track your profits and losses over time and see exactly where your money is going. This information can be invaluable when making strategic decisions about allocating resources and investing capital.

Another benefit of GL accounts is that they help you comply with financial regulations. Businesses must keep accurate records of their finances, and by using GL accounts, you can be sure that your recorded documents are in order.

The next key benefit of General Ledger accounts is that they simplify tax season. By classifying all of your company’s expenses and revenues into specific categories. This will help you quickly generate the reports needed to file your taxes correctly. This can save you a lot of time and hassle come tax time and if you ever need to submit them for review or audit.

Finally, GL accounts can help you better manage your cash flow. By knowing exactly how much money is coming in and going out.

In other words, to lay it all out, some of the most important benefits include:

1) Easier analysis and reporting – By using GL accounts, you can easily track your business’s financial performance over time. Doing so will make it easier to identify trends and make informed decisions about the future of your business.

2) Improved accuracy – General Ledger accounts help ensure that your financial reports are accurate and timely. This enables you to stay on top of your business’ finances and make sound decisions based on accurate data.

3) Greater control over budgeting – Having a clear understanding of your company’s income and expenses is essential for effective budgeting. GL accounts allow you to track your company’s spending.

You may encounter some common types of GL accounts in your own business.

The most common types of GL accounts are those for assets, liabilities, equity, revenue, and expenses. These five account types have their unique purpose and characteristics.

For example, an asset account typically represents something of value that the company owns. On the other hand, a liability account represents a debt or financial obligation owed by the company. Equity accounts represent the ownership interest of shareholders in the company. Revenue accounts represent money coming in from sales or other sources, while expenses represent money going out for operating costs or other purposes.

General Ledger Accounts list

Some common types of General Ledger accounts that you may encounter in your business are:

  1. Accounts Receivable: This account tracks money owed to the company by customers for products or services that have been delivered.
  2. Accounts Payable: This account tracks money that the company owes to suppliers for goods or services received.
  3. Inventory: Inventory tracks the value of goods and materials held by your business.
  4. Sales: Sales tracks revenue generated by your business through sales of goods and services and is typically used in conjunction with a product or service’s cost of goods sold (COGS) account.
  5. Cost of Goods Sold: This account tracks the cost of goods and materials sold by your business.
  6. General and Administrative Expenses: This account tracks expenses related to running your business, such as office rent and utilities.

Examples of how to use General Ledger accounts to track specific types of expenses and revenue

There are a few different ways to use GL accounts to track specific expenses and revenue. One way is to create separate accounts for each expense or revenue type. For example, you could have an account for advertising expenses, another account for office supplies, and one for travel expenses.

Assign Account Names with Account Numbers

To further benefit from this technique, you can tailor the account names and numbers to the particular items you want to follow. For example, if you’re going to track advertising expenses, you could create a GL account called “Advertising Expenses” and assign it the account number 401. Then, when you have an advertising expense, you would charge it to that account. This will help you track your advertising spending to make more informed decisions about your marketing budget.

Create Sub-Accounts

Another way to use General Ledger accounts is to create sub-accounts within each major account. For example, under the advertising expenses account, you could have sub-accounts for online ads, print ads, and TV ads. This can help you track where your money is going and how effective each type of advertising is.

Project and Department Tracking

Alternately, you could set up your GL accounts in a way that allows you to track expenses and revenue by project or department. This would give you insight into which projects or departments generate the most income and where most of your costs are going. Whichever system you decide to use, make sure that it makes sense for your organization and will help you meet your goal.


General Ledger accounts are primarily used in bookkeeping to track a company’s revenue and expenses. By categorizing transactions into specific GL accounts, businesses can get a clear picture of where their money is coming from and where it’s going. You then use this information to make informed decisions about growing the business and improving profitability.

There are a five major types of General Ledger (GL) accounts that you may encounter in your business:

  1. Assets
  2. Liabilities
  3. Equity
  4. Revenue
  5. Expenses

Each account is further broken out into subaccounts. Allowing your company to track revenue and expenses. You can then generate financial statements to assess your company’s financial health and make decisions to help run a successful business.

If you need assistance setting up your company’s general ledger using chart of accounts, feel free to schedule a free consultation with me or visit our service page.



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