The General Ledger (GL) is the backbone of every accounting system. It acts as the central record where all business transactions—from a sales invoice to a GST payment—are summarized and classified into accounts like assets, liabilities, income, and expenses. But to truly understand how the GL works, it’s important to also look at its building blocks: GL ledger works, it’s important to also look at its building blocks: how ledgers are classified, how sub-ledgers feed into the GL, and how GL codes provide structure and standardization.
In this blog, we’ll break down the core components of the General Ledger, including its classifications, the role of sub-ledgers, and the importance of GL codes in the Indian accounting context. This foundation will set the stage for understanding why GL reconciliation is critical (covered in Part 2 of this series).
A General Ledger (GL) is the main book of accounts for any business. It records and groups all financial transactions into different categories like assets, liabilities, income, expenses, and equity.
Every entry in the business—from a sales invoice to a GST payment—eventually flows into the GL. Sub-ledgers such as accounts payable, accounts receivable, or the GST sales register feed their totals into the general ledger.
This makes the GL the single source of truth for financial reporting. It helps you see the overall financial position of your business at any point in time.
For example:
- Cash in hand and bank balances go under assets.
- Loans and outstanding supplier bills appear under liabilities.
- Income from sales goes under revenue.
- Purchases and salaries fall under expenses.
Because it shows the complete picture, accountants use the GL in accounting to prepare trial balances, reconcile data with GST returns, and generate financial statements.
Classification of General Ledgers
The General Ledger is not a single uniform book — it’s a structured collection of different types of accounts that record the entire financial position of a business. Broadly, ledgers are classified as follows:
1. Asset Accounts
- Capture everything a business owns.
- Examples: Cash, Bank A/C balances, Sundry Debtors, Accounts Receivable, Inventory, Fixed Assets, Prepaid Expenses.
- Directly linked to the balance sheet of GL account.
2. Liability Accounts
- Record obligations the company owes to others.
- Examples: Accounts Payable, Accrued Expenses, Loans, GST Payable.
- Critical for tracking debt and compliance obligations.
3. Equity Accounts
- Represent the owner’s stake or net worth of the business.
- Examples: Share Capital, Reserves & Surplus, Retained Earnings.
- Help in calculating return on equity and capital structure.
4. Revenue Accounts
- Record income from core and non-core business operations.
- Examples: Sales Revenue, Service Income, Interest Income.
- Tied to both the income statement and statutory reporting.
5. Expense Accounts
- Capture costs incurred to run the business.
- Examples: Cost of Goods Sold (COGS), Salaries, Rent, Utilities, Depreciation, GST Expense.
- Key to profit & loss statement analysis.
What are Sub-ledgers & Their Role
A Sub-ledger is a detailed record of individual transactions that supports a specific General Ledger (GL) account. Think of it as the “supporting book” that captures every single transaction, while the GL ledger only carries the summarized balance.
Without sub-ledgers, a GL in accounting would become too bulky to manage and nearly impossible to reconcile. Sub-ledgers make it easy to track details, verify balances, and drill down when mismatches arise.
Types of Sub-ledgers
1. Accounts Receivable (AR) Sub-ledger
- Tracks money owed by customers (credit sales).
- Example: Each customer invoice and payment is recorded here.
- Feeds into GL: The closing AR balance goes into Sundry Debtors A/c in the GL.
2. Accounts Payable (AP) Sub-ledger
- Tracks money your company owes to vendors and suppliers.
- Example: Each supplier bill, advance, or payment is recorded here.
- Feeds into GL: The closing AP balance goes into Sundry Creditors A/c in the GL.
3. Fixed Asset Register (FAR)
- Maintains details of company assets—purchase date, cost, depreciation, disposal.
- Example: Machinery purchased for ₹25,00,000 depreciated annually.
- Feeds into GL: Updates Fixed Assets A/c and Accumulated Depreciation A/c.
4. GST Sales Register
- Captures invoice-level sales data, taxable value, GST charged, and filing status.
- Example: Sale of goods ₹10,00,000 + 18% GST = ₹11,80,000.
- Feeds into GL: Updates Sales A/c and Output GST Ledger.
5. Inventory Ledger
- Tracks stock purchases, issues, and balances for goods.
- Feeds into GL: Stock/Inventory A/c.
- Example: Raw materials or finished goods received and issued for production or sales.
6. Cash Ledger
- Records cash inflows and outflows for the business.
- Feeds into GL: Cash A/c.
- Example: Petty cash transactions, cash receipts from customers, and cash payments to vendors.
How Sub-ledgers Feed Into the GL
- Sub-ledgers capture transaction-level details.
- The balances are summarized and posted into the respective GL accounts.
- Example:
- All customer invoices → AR Sub-ledger → Sundry Debtors GL A/c.
- All supplier bills → AP Sub-ledger → Sundry Creditors GL A/c.
This system ensures the GL ledger stays concise for reporting, while sub-ledgers hold all the drill-down detail needed for reconciliation, audits, and GST compliance.
GL Ledger Codes: Meaning and Importance
In accounting, every General Ledger account is assigned a unique multiple-digit GL code (also called an account code). These codes form the Chart of Accounts (CoA) and help companies categorize, track, and report transactions in a structured way.
Why GL Codes Matter
- Standardization – They provide a uniform way of identifying accounts across different branches, entities, or teams, cutting the chances of errors.
- Clarity – Easy to know whether an entry relates to cash, payables, or taxes without reading long descriptions. It also helps in correctly categorizing all your expenses and revenues.
- Spending Control – GL codes make it easy to spot if one department is overspending while another is underspending.
- Automation – Accounting software and ERP systems rely on GL codes to post, reconcile, and generate reports.
- Audit & Compliance – A structured chart of accounts makes audits and statutory reporting much smoother.
GL Codes in the Indian Context
Indian companies, especially those complying with Companies Act, Ind AS, GST, and Income Tax requirements, use structured GL codes for all major accounts. Codes are designed to reflect the nature of the account—assets, liabilities, income, expenses, or taxes.
An Example of GL Ledger Coding Structure
Here’s a simple example of how Indian businesses may structure their GL codes:
- 1010 – Cash Account (Cash in hand, petty cash)
- 2200 – Accounts Payable (Sundry Creditors)
- 3100 – Accounts Receivable (Sundry Debtors)
- 5100 – GST Payable (output GST liability)
- 5200 – Input GST Ledger (credit available for set-off)
- 7100 – TDS Payable (deductions made but not yet deposited)
Companies often extend this coding with sub-classifications for divisions, locations, or business units. For example:
- 1010.01 = Cash – Head Office
- 1010.02 = Cash – Branch Office
This helps in multi-location accounting and consolidation.
Difference Between General Ledger and Sub-ledger
While both General Ledger (GL) and Sub-ledgers are integral to an organization’s accounting framework, they serve distinct purposes. Understanding the difference between the two helps ensure accurate financial reporting and smooth reconciliation.
| Aspect | General Ledger (GL) | Sub-ledger |
|---|---|---|
| Level of Detail | Provides summary balances for each account (e.g., Sales, Purchases, Cash, Inventory). | Captures detailed transaction-level data (e.g., every sales invoice or vendor bill). |
| Purpose | Used for preparing trial balances, financial statements, and statutory reporting. | Used for operational tracking, vendor/customer-level analysis, and internal reporting. |
| Data Volume | Stores summarized information for easy review and reporting. | Stores high volumes of granular data that feed into the GL. |
| Examples | Sales Account, Purchases Account, Cash Account, Inventory Account. | Sales Register, Purchase Register, Accounts Receivable Ledger, Accounts Payable Ledger, Inventory Ledger, Cash Ledger. |
| Audit & Control | Acts as the final source for financial reporting and compliance. | Provides supporting evidence and traceability for GL entries, strengthening audit trails. |
Conclusion
The General Ledger is more than just an accounting book—it is the single source of truth for a company’s financial health. By classifying transactions into structured accounts, supported by detailed sub-ledgers, and standardized through GL codes, businesses can ensure accuracy, transparency, and consistency in financial reporting.
For Indian businesses in particular, GL codes aligned with statutory needs under GST, Income Tax, and Ind AS provide a strong foundation for compliance and audit readiness.
In Part 2 of this series, we’ll go beyond the structure of the GL and explore the process of General Ledger Reconciliation—how to verify balances, match them with GST returns, and ensure error-free financial reporting.
