General Ledger

What Is the General Ledger?

The general ledger (GL) is the central repository of all financial transactions recorded by a business. Every financial event — a sale, a payment, a vendor bill, a payroll run, a depreciation entry — ultimately ends up as one or more entries in the general ledger. The GL is the foundation from which all financial statements (income statement, balance sheet, cash flow statement) are generated.

In accounting software like QuickBooks Online or Xero, the general ledger is not something you typically see directly day-to-day — it exists behind the interface. But it is always there, recording every debit and credit.

How Transactions Flow from Invoices to the GL

When a vendor invoice is processed through accounts payable, it creates a specific sequence of GL entries:

Step 1 — AP Entry (when the bill is recorded):

• Debit: Expense account (e.g., Advertising Expense, Utilities)
• Credit: Accounts Payable

This entry records that an expense has been incurred and that the business now owes money to the vendor.

Step 2 — Payment (when the bill is paid):

• Debit: Accounts Payable
• Credit: Cash or Bank Account

This entry records that the liability has been satisfied and cash has gone out.

The net effect: the expense account increases (debit), and cash decreases (credit). The AP account is debited and credited back to zero — it was just a temporary holding account.

Debits and Credits in AP Context

In double-entry bookkeeping, every transaction has equal and offsetting debits and credits. For AP:

• Expenses increase with debits
• Liabilities (AP) increase with credits and decrease with debits
• Assets (Cash) decrease with credits

This can be counterintuitive — "crediting" an account doesn't mean adding to it in every case. The direction depends on the account type.

How Invoice Data Extraction Feeds GL Entries

When AI extraction pulls structured data from an invoice — vendor name, amount, GL account code, date — that data can be formatted into an accounting software import that creates the correct GL entries automatically. The bookkeeper provides the GL account mapping (which vendor bills to which expense account), and the system handles the double-entry mechanics.

This is the core value of extraction-to-import workflows: they eliminate manual GL entry while preserving the accuracy of the underlying ledger.

GL vs. Subledger

The general ledger contains summary-level balances for each account. The accounts payable subledger contains the detail behind the AP balance — every individual vendor bill, its status, and its amount. The AP subledger feeds into the GL: the total of all open bills in the AP subledger should equal the AP account balance in the GL.

This distinction matters for reconciliation: when the AP subledger and GL AP balance don't match, there's an entry error somewhere.

Using GL Data for Reporting

The general ledger is the source data for all financial reporting. Profit and loss statements pull from revenue and expense accounts in the GL. Balance sheets pull from asset, liability, and equity accounts. The accuracy of your reports is entirely dependent on the accuracy of your GL entries — which is why clean, validated invoice extraction matters upstream.