Uses of the General Ledger

by Kaye Morris, Demand Media

The accounting general ledger is a report that provides a detailed description of every general ledger account and the transactions that make up the balance in that account. The general ledger holds all the financial information used to create the income statement and balance sheet reports, and serves several main purposes in the financial operation of the business.


When reviewing financial statements, accountants may find fluctuation in financial activity outside the normal scope of operations. In addition, while preparing balance sheet reconciliations, accountants may discover an out-of-balance condition between the ending balance in a balance sheet account and the external source the account balance should equal. In both those cases, the accountant refers to the detailed transactions in the general ledger to identify activity that has been improperly recorded or has been recorded to the incorrect general ledger account.


Whether a business owner conducts an internal audit or pays an accounting firm to conduct an external audit, the accounting general ledger is one of the most important items used to review the financial operations of the business. Auditors use the general ledger to see the detailed explanation of income and expenses to ensure everything has been properly classified. Auditors also use the general ledger detail to select items for further review. For example, an auditor may select a general ledger expense for office supplies and ask to see the invoice that created the expense item.
Auditors compare the total general ledger activity for income and expenses to the total activity on the income statement. The ending balance in asset, liability and owner equity accounts should equal the amounts reflected on the balance sheet.

Budget Preparation

An annual budget is an important tool to help monitor and control the financial operations of a business. During the latter part of the accounting year, business owners begin preparation of an operating budget for the upcoming year. The operating budget is a forecast of all income and expense expected to take place during the upcoming year. While a business owner could create a budget simply by inflating the total income and expense of the current year by a preset inflationary factor, that method would not take into account extraordinary and one-time expenses that have been reported during the current year. The best method for creating a budget is using current income and expense in conjunction with a thorough review of the general ledger detail to identify one-time and uncommon income and expense transactions, so that those figures do not artificially inflate the upcoming year&rsquo;s budget.

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