What Is a General Ledger?
A general ledger (GL) is the master record where every financial transaction a business makes ends up, organised by account. Sales, purchases, salary payments, GST remittances, loan repayments, rent; all of it posts here, and the totals across GL accounts are what produce your trial balance, profit and loss statement, and balance sheet.
Old concept. Not old compliance rules. Section 128 of the Companies Act, 2013 mandates double-entry books of account and eight financial years of retention. For non-corporate businesses, Section 44AA of the Income Tax Act, 1961 kicks in once turnover crosses Rs.25 lakh. Under GST, Section 36 of the CGST Act sets the bar at 72 months of record-keeping from the annual return due date. Three different laws, three different retention windows, and your GL sits at the centre of all of them.
How Does a General Ledger Work?
A transaction enters the GL as a journal entry: one debit, one credit, minimum. Double-entry bookkeeping. There is no legal shortcut around it for companies registered in India, and frankly, even partnership firms and LLPs follow the same approach because their auditors insist on it.
Here is an illustrative example. A supermarket in Sector 62, Noida sells goods worth Rs.1,18,000 (inclusive of 18% GST) on credit in March 2026. That single sale touches three GL accounts:
| Account | Debit (Rs.) | Credit (Rs.) |
|---|---|---|
| Trade Receivables (Asset) | 1,18,000 | |
| Sales Revenue | 1,00,000 | |
| GST Output Tax (Liability) | 18,000 |
Note: this is an illustrative entry. The receivable stays in Assets until the customer pays. Revenue feeds the P&L. Output tax parks itself under Liabilities until it is remitted through GSTR-3B. Three accounts, one transaction; that is how a GL builds granularity over time.
At period end, you pull a trial balance where all debit totals should equal all credit totals, and if they do not, something got posted to the wrong account or missed entirely. From there, the financial statements take shape.
What Are the Five Types of GL Accounts?
Five categories. That is all. Every account in your chart of accounts maps to one of these, whether you run a 60-account garment shop in Ernakulam or a 200-account manufacturing unit in Ludhiana with three production lines and separate cost centres.
| Type | What It Tracks | Indian SME Examples |
|---|---|---|
| Assets | What the business owns | Cash, bank balance, trade receivables, inventory, fixed assets, GST input credit |
| Liabilities | What the business owes | Trade payables, GST output tax, TDS payable, PF payable, ESI payable, loan balances |
| Equity | Owner’s stake in the business | Share capital, retained earnings, partner capital accounts |
| Revenue | Income from operations | Sales, service income, interest received |
| Expenses | Costs of running the business | Raw material purchases, salaries, rent, electricity, Professional Tax, audit fees |
The chart of accounts is just the numbered, grouped master list of these accounts. Most Indian SMEs on Tally start with 40 to 60 accounts and add more as the business grows; by the time a retailer opens a second outlet or a manufacturer adds a warehouse, the chart usually crosses 100.
Why Does the General Ledger Matter for Indian Businesses?
Compliance. That is the blunt answer, and no amount of good intentions fixes a GL that was never maintained.
Section 128 of the Companies Act does not merely ask for books of account. It prescribes double-entry, mandates eight years of retention, and carries penalties of imprisonment up to one year or fines between Rs.50,000 and Rs.5,00,000 for directors who fall short. Non-corporate businesses face Section 271A of the Income Tax Act, which imposes Rs.25,000 for failure to maintain books where Section 44AA requires them.
GST is where things get messy in practice. Your GL must track input tax credit as it appears in GSTR-2B, output tax from sales invoices, and the net payable for each return period. Since October 2025, the Invoice Management System on the GST portal lets recipients accept, reject, or hold supplier invoices before they flow into GSTR-2B. That added a new reconciliation step most accountants were not prepared for; the purchase register and GL now need to match the IMS dashboard, not just the supplier’s GSTR-1.
Across 8,000+ Invoice clients at Petpooja, the GL issue that comes up most often is unreconciled GST input credit. The accountant books ITC from the purchase bill on day one, but the supplier files GSTR-1 late or punches in a wrong GSTIN. Credit never surfaces in GSTR-2B. Three months pass before anyone notices, and by then the reversal hits a full quarter of returns.
How Petpooja Invoice Connects to the General Ledger
Petpooja Invoice generates GST invoices with the correct CGST, SGST, or IGST split. The Tally integration pushes each transaction into your GL as a journal entry: sales, tax collected, trade receivables, all landing in the right Tally ledger accounts without someone typing them in again at close of day.
Turnover above Rs.5 crore? E-invoices carry an IRN that ties the invoice to the GST portal and your books in one step. Clients like AhAs run this across billing counters and skip the end-of-day re-entry routine that used to eat 45 minutes per outlet for their accountant.
Frequently Asked Questions
The subsidiary ledger holds the line-by-line detail. Your trade receivables subsidiary lists each customer and what they owe; the GL account for receivables shows one consolidated total. When those two numbers do not match, an entry was either misposted or skipped.
Eight financial years under the Companies Act, 2013. Under GST (Section 36, CGST Act), it is 72 months from the annual return due date. If you fall under both, whichever window runs longer is the one that applies.
Depends on your numbers. Section 44AA of the Income Tax Act requires books once gross receipts cross Rs.25 lakh (business) or Rs.1,50,000 (specified professions). Below those lines, no statutory mandate exists. Your CA will probably still insist, though, because reconstruction during an assessment is far more painful than maintenance.
It adds accounts. A sale now creates an output tax liability entry alongside revenue. A purchase creates an input credit asset entry alongside the expense. The net of the two drives your GSTR-3B payment. Since the Invoice Management System went live in October 2025, the ITC figures in your GL also need to square with what you have accepted on the IMS dashboard before filing.
You can, until you cannot. Past 200 to 300 transactions a month, the reconciliation time in a spreadsheet starts costing more than a Tally licence. Most Indian SMEs land on Tally, Zoho Books, or Busy once they hit that volume, and the migration is usually less painful than they feared.
