A Ledger is the main record or book where all financial transactions of an organization are compiled and organized by account types, such as assets, liabilities, income, and expenses. It forms the backbone of any accounting system by providing summarized account details which may be derived from journal entries or other accounting systems.
For example, if a company purchases office supplies, the transaction is recorded in a journal and then transferred to the respective ledger accounts—an expense account for office supplies and an account for cash or accounts payable.
Ledgers can exist in various forms, such as general ledgers and subsidiary ledgers. A general ledger provides a summary of all accounts, while subsidiary ledgers provide detailed breakdowns of specific accounts such as accounts payable and accounts receivable.
By using ledgers, organizations can efficiently track their financial performance over time. They also serve as a source for creating financial statements, such as a balance sheet or an income statement.