What is the function of a ledger in accounting?

The function of a ledger in accounting is to record all financial transactions for each account. A ledger serves as a comprehensive collection of accounts, where each account reflects the financial activities related to specific aspects of a business, such as cash, accounts receivable, accounts payable, and equity.

By systematically recording transactions in the ledger, businesses can track the effect of these transactions on each account and ensure that the accounting equation (Assets = Liabilities + Equity) remains in balance. This detailed recording is crucial because it provides the necessary data for preparing financial statements and conducting financial analysis.

Other functions such as preparing financial statements, summarizing total revenues and expenses, and calculating financial ratios rely on the accurate and organized data maintained in the ledger. These subsequent activities cannot occur effectively without the fundamental role of the ledger in documenting the initial transactions.