What is the purpose of a ledger in accounting?

The purpose of a ledger in accounting is fundamentally to record business transactions. A ledger serves as a detailed repository of all financial transactions that a business engages in, providing a permanent and organized record of each transaction by categorizing them into various accounts. This systematic arrangement allows businesses to track their financial activities over time, ensuring that all income, expenses, assets, liabilities, and equity are accurately documented.

While calculating profits and losses, summarizing financial data, and preparing annual reports are important aspects of the accounting process, they primarily rely on the data that has been meticulously entered into the ledger. Without the initial recording of transactions in the ledger, it would be impossible to perform accurate financial analyses, generate summaries, or compile reports. Thus, the core function of the ledger directly supports the overall accounting framework by serving as the foundation for all subsequent financial reporting and analysis.