What Is a General Ledger?

General ledgers are records of all transactions made by a particular company during a specific period. Because it is based on the double-entry accounting system, every transaction affects at least two accounts. One is debited and the other is credited.

Each side (credit and debit) of the transactions is categorized under different accounts for assets, liabilities, owner’s equity, revenues, and expenditures.

So, a company’s general ledger may include sections for cash, machinery, salaries, suppliers, and clients.

In this article, we will explore the structure of a general ledger with some examples, its role in the preparation of financial statements, and how it can inform valuation estimates.

Structure of a General Ledger

While formats can vary across organizations and accounting software, a typical general ledger includes the following elements:

• Date – The date of the transaction
• Name – The other account involved in the double-entry
• Type – The nature of the transaction (e.g., asset purchase, income, expense)
• Debit – The amount added to the account
• Credit – The amount deducted from the account
• Balance – The account’s balance after the transaction
• Reference – A link or note referencing the original journal entry

Let’s see how a simple transaction, such as the following one, is recorded in a general ledger.

Date	Description		Debit	Credit
October 22, 2025	Office supplies A/c		$800
		To Cash A/c		$800

Here, the company purchased office supplies worth $800 in cash. This transaction will be recorded in the general ledger in the following manner:

Account	Office supplies
Date	Name	Type	Debit	Credit	Balance
22-Oct-25	Cash	Asset purchased	$800	$ -	$2,000
Account	Cash
Date	Name	Type	Debit	Credit	Balance
22-Oct-25	Office supplies	Asset purchased	$ -	$800	$50,640

This double-entry ensures that the transaction’s impact on the final balances for office supplies and cash is recorded accurately.

Role of the General Ledger in Preparation of Financial Statements

The general ledger serves as the backbone of financial reporting. At the end of every period, the final balances from all accounts are arranged in the statement of income and the balance sheet.

If all entries were recorded accurately, the following fundamental accounting equation must always hold true:

Assets – Liabilities = Stockholders’equity

If discrepancies appear in the financial statements, accountants can trace the issue back to the general ledger. Each ledger entry acts like a breadcrumb that leads to the root cause of inconsistencies, whether it’s a missed entry, a misclassification, or a mathematical error.

Why General Ledgers Matter in Valuations

For analysts, auditors, and investors, general ledgers provide a granular view of how a company earns, spends, and manages money. While summarized financial statements offer the big picture, general ledgers reveal the finer details that can significantly impact company valuation.

The general ledger is often the primary source for uncovering the story behind the numbers.

Here’s an example of how a general ledger can help demystify certain key determinants of a company’s valuation.

Suppose a company has the following general ledger:

Account	Sales
Date	Name	Type	Debit	Credit	Balance
1-Jan-25	Client A	Credit sales	$10,000	$ -	$140,000
10-Jan-25	Client B	Credit sales	$50,000	$ -	$190,000
5-Feb-25	Client C	Credit sales	$25,000	$ -	$215,000
10-Feb-25	Client B	Credit sales	$15,000	$ -	$230,000
20-Mar-25	Client B	Credit sales	$35,000	$ -	$265,000
25-Mar-25	Client A	Credit sales	$5,000	$ -	$270,000
Account	Client A
Date	Name	Type	Debit	Credit	Balance
1-Jan-25	Sales	Credit sales	$ -	$10,000	$35,000
25-Mar-25	Sales	Credit sales	$ -	$5,000	$40,000
15-Apr-25	Cash	Payment received	$25,000	$ -	$15,000
15-May-25	Cash	Payment received	$10,000	$ -	$5,000
15-Jul-25	Cash	Payment received	$5,000	$ -	$ -
Account	Client B
Date	Name	Type	Debit	Credit	Balance
10-Jan-25	Sales	Credit sales	$ -	$50,000	$110,000
10-Feb-25	Sales	Credit sales	$ -	$15,000	$125,000
20-Mar-25	Sales	Credit sales	$ -	$35,000	$160,000
10-Apr-25	Cash	Payment received	$60,000	$ -	$100,000
10-May-25	Cash	Payment received	$50,000	$ -	$50,000
10-Jun-25	Cash	Payment received	$15,000	$ -	$35,000
10-Jul-25	Cash	Payment received	$35,000	$ -	$ -
Account	Client C
Date	Name	Type	Debit	Credit	Balance
5-Feb-25	Sales	Credit sales	$ -	$25,000	$25,000
25-Jun-25	Cash	Payment received	$25,000	$ -	$ -

Observations

• Client A accounts for more than 70% of the total sales, signifying a concentration risk. Delayed payments from client A could significantly affect short-term cash flow.
• Almost all credit sales take about 4 months to be settled, which ties up cash and signals potential liquidity strain.
• Most cash inflows occur in Q2 and Q3, even though sales were recorded in Q1. This mismatch between revenue recognition and cash realization suggests a working capital gap.

Conclusion

The company’s overall liquidity is weak. Although all receivables are ultimately collected, the long collection cycle increases reliance on working capital and potentially constrains operational flexibility. These factors must be incorporated into the cash flow projections and the risk premium portion of the discount rate.

Eqvista – In-Depth Reports for Assured Accuracy!

A general ledger is the foundational framework that supports financial transparency, accuracy, and decision-making. By maintaining a detailed and consistent ledger, businesses can validate their financial statements, detect irregularities, and make timely adjustments that enhance valuation accuracy.

If you’re someone who appreciates the power of detail and precision, explore Eqvista’s comprehensive valuation reports. Our seasoned valuation analysts go over every granular detail, right from general ledgers to investor sentiments, to provide the most accurate assessment of your company’s value.

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