What is a ledger used for in accounting?

A ledger is a fundamental tool in accounting used to systematically record all financial transactions of a business. It serves as the central collection point for all financial data, where each transaction is listed, categorized, and organized. This systematic recording allows for comprehensive tracking of financial events over time, ensuring that all financial activity is accounted for in an orderly manner.

The significance of a ledger lies in its detailed record-keeping, which helps in preparing financial statements, analyzing financial performance, and maintaining an accurate picture of a company's financial health. This organized format allows accountants to efficiently update account balances, detect discrepancies, and generate reports as needed, ultimately aiding in informed decision-making.

In contrast, the other choices relate to broader financial reporting and analysis functions that rely on the data captured in the ledger but do not define its primary purpose. While summarizing income statements and reporting yearly financial performance rely on the information from the ledger, they do not describe the ledger's role in the recording process. Similarly, while calculating taxes involves financial data that would be derived from the ledger, the ledger itself specifically pertains to the systematic recording of transactions.