What is the primary purpose of a ledger?

A ledger serves as a central record-keeping tool in accounting, where all financial transactions of a business are systematically recorded. This process helps ensure that every transaction is documented chronologically and categorized appropriately, making it straightforward to track financial activity over time.

By maintaining a ledger, businesses can compile detailed records of all income and expenses, which is essential for preparing financial statements, performing audits, and monitoring the financial health of the organization. This comprehensive record also forms the basis for reconciling accounts and serves as a reference for future financial analysis.

While calculating taxes owed and summarizing cash flows are important functions in accounting, they build upon the information recorded in the ledger. Similarly, managing budgets relies on the accurate tracking of transactions within the ledger to ensure that budgetary constraints are adhered to and financial planning is realistic. Thus, the primary function of a ledger is indeed to record financial transactions.