What Is a General Ledger? A Guide for Hong Kong SMEs [2025]

If you want a clear picture of how your business is really doing, start with your general ledger.

As a business owner, this ledger offers an insightful overview of your income, expenses, and cash flow, which helps you understand where your money comes from and where it goes.

In this guide, we’ll walk through what a general ledger actually is, how it works, and why every Hong Kong SME should understand it, even if you’re using accounting software to manage the details.

A general ledger (also called GL, or general journal) is a financial record-keeping system where all transactions are organised into different accounts, such as assets, liabilities, revenue, and expenses. It records key details of each financial transaction, including the date, description, amount, and debit or credit entries, providing an overview of the company’s financial health and ensuring accuracy in accounting records.

These days, most businesses use accounting software like Xero or QuickBooks to automate bookkeeping, including general ledger management. However, some small businesses still rely on paper-based ledgers, though manual recording and calculations are more prone to errors and harder to manage.

A general ledger records every financial transaction your business makes and shows how it affects different accounts over time.

Each transaction begins as a journal entry, where details such as the date, amount, and purpose are recorded. These entries are then posted to the general ledger under the correct accounts listed in the Chart of Accounts (COA), for example, Cash, Sales, Rent Expense, or Accounts Payable.

Throughout the accounting period, the ledger keeps track of these updates, creating a complete record of your assets, liabilities, income, and expenses. At the end of the period, all account balances are summarised in a trial balance, which helps confirm that the records are accurate before preparing the financial statements.

The double-entry accounting or double-entry bookkeeping system ensures that every transaction is recorded in two accounts (or more): one as a debit (DR) and one as a credit (CR):

It follows the basic accounting equation:

This equation must always stay balanced after every transaction. That’s where debits (DR) and credits (CR) come in, as they ensure that when one account increases, another decreases by the same amount to maintain financial accuracy.

• Debits (DR) increase assets and expenses but decrease liabilities and revenue.
• Credits (CR) increase liabilities and revenue but decrease assets and expenses.

The table below shows a simple example of how a general ledger records transactions under the double-entry system:

In Hong Kong, most SMEs and startups structure their general ledger around 7 main account categories. These categories align with the format recommended under the SME Financial Reporting Framework and Standard (SME-FRF & SME-FRS) set by the Hong Kong Institute of Certified Public Accountants (HKICPA).

Assets represent what the business owns or controls that has future economic value. Common sub-accounts include:

• Cash and bank accounts
• Accounts receivable
• Inventory
• Prepaid expenses (e.g. rent or insurance)
• Fixed assets such as equipment, computers, and property

Liabilities record what the business owes to others. Typical sub-accounts include:

• Accounts payable
• Accrued expenses
• Tax payable to the Inland Revenue Department (IRD)
• MPF payable
• Loans payable or lease liabilities

Equity reflects the owners’ or shareholders’ stake in the business after liabilities are deducted from assets. Key sub-accounts include:

• Share capital
• Retained earnings
• Dividends or drawings

Operating revenue tracks income earned from normal business activities. Typical sub-accounts include:

• Sales revenue
• Service income
• Other operating income, such as commissions or handling fees

Operating expenses cover the day-to-day costs of running the business. Common sub-accounts include:

• Rent and utilities
• Staff costs (salaries, wages, MPF contributions)
• Office and administrative expenses
• Professional fees (accounting, audit, legal)
• Marketing and travel

Non-operating revenue refers to income generated outside of core operations. Examples include:

• Interest income
• Dividend income
• Gain on disposal of assets
• Foreign exchange gain

Non-operating expenses capture costs not directly related to daily operations. Common examples include:

• Interest expense
• Loss on disposal of fixed assets
• Foreign exchange loss
• One-off restructuring or impairment costs

Since it is a detailed record of business transactions, a general ledger helps businesses track spending and maintain accurate financial records. Let’s take a closer look at what a general ledger can tell and why it’s essential.

The ledger provides an overview of your company’s financial position by showing how money flows in and out across different accounts. It helps identify profit sources, expense patterns, and overall business performance.

Because each transaction is recorded in both a debit and a credit account, discrepancies can be spotted and corrected quickly. This structure helps prevent misstatements and ensures that financial reports reflect the company’s true position.

A well-organised ledger provides the foundation for preparing accurate financial statements and supporting documents during audits. Clear, traceable records make it easier to verify transactions and demonstrate sound financial management.

Accurate ledgers enhance trust with investors, auditors, and financial partners. They show that your business maintains disciplined accounting practices and operates with financial integrity.

Analysing ledger data over time helps identify trends in revenue, expenses, and cash flow. These insights are key for budgeting, forecasting, and planning future investments.

Here are a few tips to keep your records accurate and stress-free.

• Keep your Chart of Accounts simple: Don’t overcomplicate it. Keep only the accounts you actually use like Cash, Sales, Rent, Salaries. The cleaner your setup, the easier it’ll be to stay on top of your numbers.
• Record transactions regularly: Don’t wait until year-end to catch up. Updating your ledger weekly or monthly makes it easier to spot mistakes early and stay organised.
• Reconcile with bank statements: Compare your ledger with your bank statements at least once a month. It’s the quickest way to confirm that your balances are correct and nothing’s been missed.
• Store supporting documents: Save invoices, receipts, and payment proofs in one place, preferably digital. Having them ready saves time during audits or when your accountant needs to check something.
• Use the right accounting software: Cloud-based platforms like Xero or QuickBooks automate ledger entry and reconciliation, so you can focus on operations.
• Work with a qualified accountant: Even if you use accounting software, a professional accountant is essential to review your records, prepare financial statements, and ensure compliance with Hong Kong law.

No accounting system is accurate without reliable transaction data. The Statrys Business Account integrates with Xero, helping Hong Kong SMEs match payments, track balances, and simplify bookkeeping in multiple currencies, making bookkeeping and accounting much easier for Hong Kong businesses.