What is a ledger, and why keep purchases and sales ledgers?

• A. A ledger is a marketing document listing customer footfall.
• B. A ledger is a record of financial transactions; separate ledgers track purchases and sales to monitor cash flow and reporting.
• C. A ledger is a tax filing form.
• D. A ledger is used to store inventory levels only.

Answer: (B)

A ledger is a record of financial transactions organized by account, so you can see how each part of the business changes over time. Keeping separate ledgers for purchases and sales lets you separately track what you owe to suppliers and what customers owe you. This helps manage cash flow, because you can clearly see outstanding payments, due dates, and how money is moving in and out of the business. It also makes reporting easier: the totals in the purchases ledger feed into accounts payable and supplier expenses, while the totals in the sales ledger feed into accounts receivable and revenue. Having these as separate records supports control and reconciliation, such as matching supplier statements and customer balances, and enables aging analyses to identify overdue accounts. A ledger isn’t about marketing, tax filing, or just storing inventory; its purpose is to record and organize financial transactions to reflect the business’s financial position.