From Paper to Autonomous: The History of the General Ledger (+Benefits of Going Digital)

It’s used everywhere: at your local coffee shop, in your accountant’s office, on your CFO’s computer.

We’re talking about the general ledger, of course. General ledgers are a staple for any business. But they’ve also gone through a pretty significant overhaul since they first entered the scene, particularly in the last few years in the wake of advanced technology like artificial intelligence.

That may sound overwhelming, but it’s actually great news for companies and leaders alike. With the transition from paper journals to automated digital general ledgers, you can better protect your information and make accounting less of a pain point.

Here, we explain where general ledgers got their start and how they’ve evolved to match the speed and complexity of today’s transactions.

What is a general ledger?

A general ledger keeps track of an organization’s finances and transactions, including income, expenses, assets, liabilities or debts, equity, and cash. It’s typically composed of subledgers, or ledgers that focus on a specific account or area of the business, such as inventory, making it easy for you to read and keep tabs on since all the information is sorted and easily searchable.

Having a reliable and organized general ledger ensures that anyone, be it an accountant or a CEO, can stay on top of cash flow, budget accordingly, report on losses or gains, and confidently track and grow the success of the company. Modern general ledgers that use software or other advanced tools can even automate the process of pulling out crucial information or creating statements to share with outside parties, such as investors or regulators.

The origins of the general ledger

The general ledger, or rather the concept of record-keeping, has existed for thousands of years, or about as long as humans have been exchanging goods and services. Researchers discovered, for example, that ledgers written on clay tablets were used in the historical region of Mesopotamia to track trade dealings, rations, and even taxes and legal matters.

But, historians often credit the adoption of the general ledger to Italian mathematician Luca Pacioli, also called the “father of accounting.” He was the first person to describe the double-entry system of bookkeeping that serves as the general ledger’s foundation.

With Pacioli, and for many years after, ledgers were journals or books written on paper. While this practice is still upheld today, many businesses, in an effort to simplify the bookkeeping process and better protect sensitive information, have replaced ledgers made by hand with digital ledgers or automated general ledgers (more on these below!).

How general ledgers traditionally work

Following the double-entry system spearheaded by Pacioli, general ledgers typically list transactions by date and break them down into two accounts: debit and credit.

All debits (money taken away) and credits (money brought in) must be equal in a transaction (or add up to zero). Otherwise, there is the likelihood of mistakes or fraud. Transactions may be totaled over a particular time period, and totals from subledgers may be transferred to the general ledger to compile a financial report.

Common types of ledgers include:

• Sales or accounts receivable ledger: A record of transactions between customers and the business, or how much each customer owes or pays.
• Purchase or accounts payable ledger: A record of transactions between a business and its suppliers, or how much the business owes or pays each supplier.
• Inventory ledger: A record of goods (products or raw materials) stocked or available, to assist with setting costs or replenishing inventory.
• Fixed assets ledger: A record of purchases and ownership of machinery, furniture, real estate, or other fixed assets, to assist with managing overhead costs.
• Payroll ledger: A record of individual salaries and other benefits provided to employees, to assist with staffing and budgeting.
• Cash ledger: A record of any cash transactions specifically.

The shift to digital: Accounting software and the modern GL

Modern technology has made keeping a general ledger so much simpler for business owners.

With digital accounting software, bookkeeping can be streamlined and automated, saving accountants, or really anyone who needs to monitor their company’s finances, time while reducing errors. It can also save businesses money by supplementing, or in some cases replacing, the work of a bookkeeper or accountant.

Automated general ledgers also provide additional security. Paper documents can easily get lost, stolen, or replicated. Digital receipts or data stored in the cloud, on the other hand, are harder to hack. That said, it’s not impossible, which is why many accounting software solutions involve encryption and decentralized networks for an additional layer of safety.

Consider a burgeoning startup founder: They may start off writing their own general ledger in a spreadsheet because they lack the budget to hire staff to do it for them or the expertise to make it more technical. This process, however, is incredibly tedious: They might spend hours combing through each transaction to pull out the customer’s name, the purchase amount, and other details.

What this founder doesn’t know is that a lot of the software out there for doing your own accounting is incredibly accessible and built for people of all backgrounds. With it, you don’t have to do everything yourself. In fact, much of the software’s job is to collect information about transactions for you, leaving you with easily digestible reports and a wealth of data to inform how you make business decisions. Not sure how to analyze that data properly? Accounting software can assist with that, too, by pulling out trends or highlighting areas where you may have issues with cash flow.

Why Digits’ AGL will change accounting

Digits’ Autonomous General Ledger (AGL) is the first truly AI-native accounting platform with advanced AI automation that categorizes transactions instantly, surfaces insights for managing revenue, and handles invoicing and bills with little oversight. With Digits in your tech stack, you can stop hunching over Excel spreadsheets and actually get valuable insights into your business’ financials.

Our team, determined to make accounting intuitive, collaborative, and attainable for all, spent five years developing AGL and another year putting it through rigorous testing with hundreds of companies.

In trials, AGL correctly auto-booked over 93% of inbound transactions and outperformed other LLM-based approaches by over 50%.

Get Digits for your business today

Whether you’re a startup, small business, or legacy accounting firm, you need a tech stack that can keep up with your financial statements.

Digits delivers reports faster than competing firms and makes sifting through information a breeze with visual and dynamic offerings fortified by bank-grade security. Digits AI integrations rapidly pick up the inner workings of your business, taking a lot of the guesswork and manpower out of bookkeeping and leaving you reassured that the numbers add up.

Get started for free today and learn how Digits can help you harness the power of AI and machine learning to optimize your general ledgers.

FAQs

If you’re not an accounting expert (or even if you are) you might still have questions about how automated general ledgers work and where they offer the most value. Let’s dive in!

What’s the difference between a GL and an AGL?

A general ledger records transactions and is often made up of subsidiary ledgers, such as a ledger for accounts receivable (sales) or accounts payable (purchases). It enables businesses to keep their finances in order and properly report their losses, gains, and assets to the appropriate authorities. General ledgers can be done in writing or digitally, manually or autonomously through technology.

An automated general ledger, such as Digits’ AGL, is a kind of general ledger that’s created and updated online and leverages AI or other technology to automate the bookkeeping process.

Can I automate my general ledger with my current software?

Maybe! Some accounting software options offer the ability to automate some of the general ledger process and upkeep. However, doing this by yourself with limited technical or accounting expertise can be time-consuming or frustrating. With a solution like Digits, you get peace of mind that your financial reporting is in good hands, without the heavy lifting of moving your data over or building a dashboard.

Is this just for big businesses, or does it help startups, too?

Automated general ledgers like Digits’ AGL are useful for all businesses, no matter your size, industry, or target customer.

For big businesses, they can provide deep analysis crucial for decision-making and free up resources for other innovative projects. Startups, meanwhile, need room to focus on scalability. An AGL can save time and money and reduce the need for highly technical support.