The Differences Between a General Ledger & Balance Sheet

The general ledger is used as a data source for other financial documents, including the balance sheet. The general ledger tracks transactions ... Inaccountingthereareseveralfinancialdocumentsusedtotrackacompany’stransactionsandoverallfinancialhealth.Thegeneralledgerandthebalancesheetaretwoofthecentraldocumentsinacompany’saccountingprocess.Althoughtheyincludesimilarinformation,thegeneralledgerandthebalancesheetarenotthesame.Theirpurposeisseparateandthemethodsofrecordinginformationineacharedifferent.DefinitionAlltransactionsarepostedtothegeneralledgerfromthedailyjournalusingasystemofdebitsandcredits,muchlikeyouuseinacheckbook.Itisthecoreofyourcompany’sfinancialrecords,trackingeverytransactionfromthefirstdayofyourcompany’shistory.Abalancesheetisnotrecordedinasmuchdetailasageneralledger.Itisasnapshotofacompany’sfinancialhealthintermsofassetsandliabilitiesatacertainpointintime.StructureAccountsinageneralledgeraregroupedinfivecategories;assets,liabilities,equity,revenueandexpenses.Thereistypicallyaseparatepageforeachaccounttrackedbythegeneralledger.Transactionsarerecordedinageneralledgerastheyoccurforeachaccount.Forexample,apaymentmadetoacreditorwouldberecordedunder“expenses,"andonthesamedayifacustomermadeapaymenttothecompany,itwouldberecordedunder“revenue."Abalancesheetisnotdividedintoseparatepages.Instead,thetotalsforeachcategoryarerecordedastheystandforthatperiod.Forexample,revenuetotalsasofDec.31wouldberecordedandexpenseswouldalsobetotaledandrecorded.SopaymentstocreditorA,BandCwouldbetotaled,ratherthanrecordedindividually.PurposeThegeneralledgerisusedasadatasourceforotherfinancialdocuments,includingthebalancesheet.Thegeneralledgertrackstransactionsandkeepsarecordofalldataforthecompanysothatotherfinancialdocumentscanbeaccuratelycompiled.Inconsistencies,accountingerrorsandlossescanbetrackedthroughthegeneralledger.Thebalancesheetshowswhoeverislookingatit(likeacreditor,forexample)whatacompanyownsaswellaswhatitowestootherpartiesasofthedateitiscompleted.Balancesheetsareoftenusedtodetermineifabusinessqualifiesforcreditoraloan.Creditors,investors(potentialandcurrent),management,suppliers,customers,governmentagenciesandlaborunionsusethebalancesheettoforecastwherethecompanywillbe,orhowitwilllookfinanciallydowntheroad.Foracreditor,thisisatooltoestimatethecompany’s“risk”whenconsideringaloan.Forthecompany’sCEOorpresident,thebalancesheethelpstodetermineifthecompanyhastoomuchinventoryorifitneedstoincreaserevenue.