What is the role of a general ledger in accounting?

The general ledger plays a foundational role in accounting by serving as the primary record-keeping system for a company's financial transactions. It contains all accounts that are part of the company's financial statements, including assets, liabilities, equity, revenues, and expenses. This comprehensive collection of accounts allows for a detailed tracking of all financial activities, enabling accountants to prepare accurate financial statements like the income statement and balance sheet.

The general ledger acts as a central hub where all transactions, recorded in various sub-ledgers, are summarized. This ensures that every financial activity is accounted for, providing insight into the overall financial health of the organization. By consolidating all accounts in one place, the general ledger facilitates audits, financial analysis, and the generation of reports for stakeholders.

In contrast, other functions such as creating the annual budget, summarizing daily sales, or tracking employee payroll are separate activities that may rely on information derived from the general ledger, but do not represent its primary purpose.