The Four Categories Of A General Ledger

Posted on: 6 February 2019


Financial organization is a key component in the management of any successful business. Many small business owners can be overwhelmed by the day-to-day tracking of financial transactions, but establishing a comprehensive way to capture each transaction will help you make your business more profitable over time.

If you haven't already set up a general ledger for your business, you should make this a top priority. General ledgers provide a comprehensive look at the financial health of your business and help ensure consistency in your bookkeeping services. These ledgers are typically broken down into four categories that can make tracking transactions easy.

1. Assets

The first category that you will want to establish when setting up a general ledger is the assets category. Assets can refer to a number of different things. Some companies might have real estate holdings, patents or trademarks, and valuable equipment.

These items, in combination with cash and accounts receivables, add value to your business. Maintaining an assets category in your general ledger lets you see exactly what your business can leverage to obtain financing for expansion in the future.

2. Liabilities

You need to know how much money your business owes to outside entities at all times to determine if you are staying solvent. The liabilities category in a general ledger lets you manage all of your debts within the same category listing.

You can include payroll, business loans, and accounts payable in the liabilities category. It doesn't matter if your debts are owed now or at some point in a future fiscal year, all monies owed by your business should be included in the liabilities category of your general ledger.

3. Equity

All business owners strive to build equity in their business. Equity is essentially the difference between the liabilities category and the assets category within your general ledger.

Maintaining equity accounts as a separate category lets you easily see the capital that you have invested into your business. You can determine whether or not you should take on additional debt by evaluating your equity accounts.

4. Transactions

The transactions category in your general ledger should be used to keep track of your company's transactions over time.

Temporary accounts that have been closed should be listed under the transactions category. You should also include corrected errors under transactions when tracking your company's finances. A transactions category lets you easily see all of your company's financial history that may not be reflected under other categories.