Struggling to stay on top of your business finances? It could come down to how well you understand your general ledger. This often-overlooked accounting tool is the backbone of every accurate financial report and smart business decision.
In this guide, we’ll break down what a general ledger is, why it’s critical for your business, and how to use it to keep your books clean and compliant.
Whether you’re a sole trader, startup founder, or managing a growing team, understanding how the general ledger works gives you clarity and control over your numbers.
By the end, you’ll know exactly how to use your general ledger to track every dollar in and out; and build a stronger, more transparent financial system for your business.
What is a General Ledger?
The general ledger is the core of your business’s financial system. It’s where every financial transaction lands, giving you a full, organised picture of where your money’s coming from and where it’s going.
Think of it as your financial HQ. It captures and categorises everything into key accounts like assets, liabilities, equity, income, and expenses, so you can see how your business is performing at any given time.
Every transaction is recorded using double-entry accounting, meaning each entry affects at least two accounts (a debit and a credit). This keeps everything in balance and ensures your financial reports are accurate and compliant.
Why a well-kept general ledger is important
A well-maintained general ledger helps you:
- Track performance with precision
- Stick to your budget
- Prepare accurate BAS and financial reports
- Stay on top of ATO compliance
In short, your general ledger isn’t just another record, it’s the backbone of smart financial management.
What are accrued expenses?
What’s included in a general ledger
To understand how a general ledger works in real life, it helps to know what it’s made up of. These core elements work together to keep your accounts accurate and organised, and give you a clear view of your business’s financial health.
1. Chart of accounts
This is your financial filing system. The chart of accounts is a complete list of all the accounts your business uses to track money in and out. These are grouped into categories like:
- Assets
- Liabilities
- Equity
- Revenue
- Expenses
Each account has a unique code (e.g. 1000 for Cash, 2000 for Accounts Payable), making it easier to sort and report on transactions. A well-structured chart of accounts keeps your ledger organised and grows with your business.
2. Journal entries
Journal entries are where transactions are first recorded. They log:
- The date of the transaction
- Which accounts were affected
- A short description
- The amount debited and credited
For example, if you buy office supplies with cash, you’d debit ‘Office Supplies’ and credit ‘Cash’. Every journal entry is a building block in your accounting records, so getting them right matters.
3. Debits and credits
Double-entry bookkeeping relies on debits and credits to keep your books balanced. Here’s how they generally work:
Account type | Increase with | Decrease with |
Assets | Debit | Credit |
Liabilities | Credit | Debit |
Equity | Credit | Debit |
Revenue | Debit | Credit |
Each transaction has a debit and a credit entry, always equal in value, so your ledger stays in balance.
4. Posting to the ledger
Once your journal entries are recorded, they’re posted to the relevant accounts in your general ledger. This step:
- Sorts entries by account
- Shows running balances
- Helps with faster report generation
Most accounting software does this step for you, but knowing what’s happening behind the scenes helps you spot issues early.
5. Trial balance
The trial balance is a checkpoint. It lists all your ledger accounts and their balances to confirm that total debits equal total credits. If they don’t match, something’s off and needs fixing.
Keep in mind, a balanced trial balance doesn’t mean everything’s perfect, it won’t catch missing entries or misclassifications. But it’s a crucial part of making sure your accounts are ready for reporting.
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6 ways to use a general ledger
A well-maintained general ledger keeps your business finances organised, accurate, and ready for reporting. Here’s how to use it properly, from setup to reporting, so you stay in control and compliant.
1. Set up your chart of accounts
Before recording a single transaction, set up a tailored chart of accounts. This is the backbone of your ledger, it tells your system where to track your income, expenses, assets, and liabilities.
Group similar accounts under clear headings like Sales, Rent, Bank Fees, Inventory, etc. And don’t forget to customize it to suit your industry and business size.
A good chart of accounts makes recording and reporting smoother and more consistent from day one.
2. Record financial transactions systematically
Every sale, bill, wage payment or refund is a transaction, and each one needs to be recorded. Use source documents like:
- Invoices
- Receipts
- Bank statements
- Log them as journal entries using double-entry bookkeeping: each transaction affects at least two accounts.
Use software that connects to your bank to reduce manual input, but always review your entries for accuracy.
3. Post journal entries to general ledger accounts
Once you’ve recorded your transactions, post them to the correct ledger accounts (e.g. Cash, Sales, Wages Expense). This keeps running totals and gives you real-time visibility into your balances.
Most modern accounting systems post automatically as soon as transactions are saved, but it’s still worth knowing how the flow works.
4. Prepare and review the trial balance
At the end of the month or quarter, run a trial balance. This lists all your account totals and checks that debits = credits.
If they don’t match, there’s an error somewhere in your records, time to go digging. Even if they do match, do a quick review to ensure nothing’s missing or misclassified.
5. Reconcile accounts regularly
Reconciliation is about matching what’s in your books with what’s actually happened. Do it monthly, and focus on:
- Bank account vs. bank statement
- Accounts receivable vs. customer balances
- Accounts payable vs. supplier statements
This step helps catch missing entries, duplicates, and fraud, before they snowball into bigger problems.
6. Generate financial reports
Once your ledger is updated and balanced, you’re ready to generate financial reports. Use them to:
- Track profitability (Income Statement)
- Check your financial health (Balance Sheet)
- Manage cash flow (Cash Flow Statement)
Don’t just run reports for the ATO, use them to guide smarter decisions about pricing, expenses, and growth.
Getting the general ledger right means less stress at BAS time, better visibility into your finances, and a stronger foundation for growing your business. Keep it updated, reconcile regularly, and use your reports, not just file them away.
What are the ATO tax penalties to avoid?
How can Sleek help
Need help keeping your ledger in check? Sleek’s bookkeeping and accounting experts can:
Set up and manage your chart of accounts
Record and reconcile transactions accurately
Keep your books ready for BAS, tax time, or investor reports
Provide tailored financial insights to help you grow
Let’s get your ledger sorted, schedule a free consultation with Sleek today.
6 benefits of well-maintained general ledger
A general ledger goes beyond simple record-keeping, offering crucial insights and controls.
Here are some key benefits:
Accurate financial reporting
With all financial transactions correctly recorded and summarised, you can generate reliable financial statements. This accuracy is essential for understanding business performance and meeting reporting obligations. Accurate financial reporting builds trust with stakeholders.
Better decision making
Access to comprehensive and organised financial data from the general ledger helps management make informed strategic and operational decisions. You can analyse trends, track expenses against budgets, and assess profitability accurately. This data supports planning and resource allocation.
Easier audits and compliance
A detailed and balanced general ledger simplifies the process of internal and external audits. Auditors can efficiently trace transactions and verify account balances, saving time and reducing disruption. It also facilitates compliance with tax regulations and accounting standards.
Improved cash flow management
By accurately tracking all sources of income and all expenditures through ledger accounts, businesses gain better visibility into their cash position. This allows for more effective cash flow forecasting and management. Understanding cash movements helps prevent shortages.
Fraud detection and error prevention
Regular review and reconciliation of general ledger accounts can help identify unusual transactions, potential errors, or patterns that might indicate fraudulent activity. The structure of double-entry transactions called bookkeeping inherently provides checks and balances. Prompt investigation of discrepancies strengthens internal controls and helps minimise bookkeeping errors.
Centralised financial data
The general ledger acts as the central repository for all financial data. This consolidation prevents information silos and ensures that everyone is working from the same set of numbers. This centralisation simplifies analysis and reporting across the organisation.
4 mistakes to avoid while maintaining general ledgers
Keeping your general ledger accurate is critical, but it’s not always smooth sailing. As your business grows, things can get messy fast. Here are some common hurdles and how to stay ahead of them.
1. Manual entry mistakes
Typos, transposed numbers, or posting to the wrong account, they all happen. Even small errors can throw off your books and lead to dodgy reports come BAS or tax time.
Fix it by:
Using accounting software to reduce manual input
Enabling built-in checks for matching entries
Having someone else review important data
Reconciling regularly to spot issues early
2. Tricky reconciliations
Making sure your general ledger matches your bank statements, accounts receivable, and supplier accounts can get tedious, especially when timing differences or missing entries pop up.
Fix it by:
Reconciling monthly (at least)
Using software that flags unmatched transactions
Creating a checklist for regular reconciliation
Setting aside time, don’t leave it till the last minute
3. Complexity for Growing Businesses
As your business scales, your transactions multiply, and so does the complexity. You’ll likely need more ledger accounts, sub-ledgers, or reports by department or location.
Fix it by:
Upgrading to accounting software that can scale with you
Expanding your chart of accounts thoughtfully
Considering working with a bookkeeper or accountant
Reviewing your setup regularly to keep it fit for purpose
4. Outdated information
If your books aren’t up to date, your decisions might be based on old info, and that can lead to trouble. Timely reporting is key to managing cash flow and spotting issues before they snowball.
Fix it by:
Recording transactions consistently (ideally in real time)
Setting month-end close deadlines
Using accounting software with real-time dashboards
Delegating or automate recurring tasks to free up time
Getting ahead of these challenges keeps your ledger clean and your reporting solid, so you can make better decisions, stay compliant, and keep the business moving in the right direction.
7 tips to keep your books in shape
Want a cleaner ledger, fewer headaches at BAS time, and better financial decisions? Here are some practical, no-fluff tips to help you manage your general ledger like a pro.
Use accounting software
Manual entries = more errors, more time, and more stress. Cloud accounting software helps automate journal entries, keep running balances, and generate reports with just a few clicks.
What to do:
Pick a system that fits your business size and structure
Use automation features for posting and reconciling
Keep it updated and backed up
Set clear processes
Whether you’re a one-person show or have a growing team, defined processes are key. Who records transactions? Who reviews them? When do you close the books each month?
What to do:
Document your accounting process
Set clear timelines for reviews and reconciliations
Assign roles and keep everyone accountable
Train your team
Your software’s only as good as the people using it. Anyone touching your books should understand double-entry basics, your chart of accounts, and internal processes.
What to do:
Offer training for anyone recording transactions
Keep guides handy for onboarding new staff
Update training as your processes evolve
Keep your chart of accounts current
If your chart of accounts is outdated or cluttered, your reports won’t tell the full story. Make sure your accounts still reflect how your business actually operates.
What to do:
Review it every quarter or when your business changes
Archive unused accounts to keep things clean
Add new ones only when they truly add value
Reconcile monthly
Don’t wait for EOFY to clean up the books. Regular reconciliation helps catch errors before they become major problems, especially with high-volume transactions.
What to do:
Reconcile your bank accounts monthly
Match key control accounts with sub-ledgers
Investigate and fix mismatches promptly
Build in internal controls
Protect your data and reduce the risk of fraud by separating duties. No one person should be responsible for everything, recording, approving, and reconciling.
What to do:
Assign financial roles with checks and balances
Limit access to sensitive ledger functions
Set approval workflows for changes and large transactions
Know when to get help
Not everything should be DIY. If something doesn’t add up, or you’re making major changes to your business, get an accountant or bookkeeper involved.
What to do:
- Engage an advisor for setup, growth phases, or complex transactions
- Ask for periodic reviews of your ledger
- Use their insights to improve reporting and compliance
Conclusion
Your general ledger isn’t just a record-keeping tool, it’s the foundation of strong financial management. Done right, it gives you a clear picture of where your business stands, helps you stay compliant, and supports better decision-making. Accuracy, structure, and consistency are key.
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