What is a ledger in accounting?

A ledger in accounting serves as a detailed record that tracks all transactions related to a specific account. It is essential for maintaining the integrity and accuracy of a company's financial information, as it allows for the systematic organization and classification of transactions. Each account within the ledger documents the inflows and outflows of funds, giving a complete overview of that particular account's activity over time.

This structure is crucial for preparing financial statements, as the ledger provides the underlying data from which summaries and reports are generated. The specificity of a ledger in accounting helps businesses monitor their financial health and ensure that all transactions are accounted for correctly.

The other choices, while related to accounting concepts, do not capture the essence of what a ledger is. For instance, a summary of a company's financial transactions refers more to financial statements rather than the detailed tracking that a ledger provides. A document recording all financial transactions of a business might describe a journal rather than a ledger, which is focused on specific accounts. An annual report summarizes a company’s overall financial performance but does not function like a ledger, which records individual transactions continuously throughout the accounting period.