If you’re wondering what is a general ledger, this article is for you. General ledgers (GLs) keep track of all a company’s financial transactions. They are a useful tool for banks and other institutions because they create a comprehensive audit trail. This audit trail can be very useful if your business ever needs to go under an IRS audit, which is very unlikely for a small business.
GLs are a record of a company’s financial transactions
A general ledger (GL) is a list of a company’s financial transactions. It is typically six digits long. The first digit is reserved for revenue postings, followed by two digits for expenses. The eighth digit represents transfers of funds from one funding source to another. The first two digits of a GL identify major and minor categories, while the fifth and sixth digits allow for more detail. For example, GL 531100 represents an expense transaction, but the purchase of an office supply may be posted to a more specific category.
The GL is the primary repository of a company’s financial data. It records all transactions and groups them according to their category in the company’s chart of accounts. This helps companies compile financial statements, analyze data, and conduct audits. Generally, a GL should be one source of truth for the company’s financial position. This makes it essential for a business to have an accurate GL.
They are an automated report
A general ledger report displays the distribution of assets, liabilities, and net worth. You can choose between static, dynamic, or custom date ranges. The report can be formatted to include custom columns, such as Ship From Address and Item SKU. To include additional information, you can select the corresponding fields in the General Ledger Object or the Accounts Object. The Report Options dialog box lets you define the values from which to drill down. Underlined links display additional information.
General ledger reports should be produced in batches, so you can review the data before you file your financial statements. Ideally, the report should reflect the most recent time period. If not, you can use run-to-run totals to test journal voucher batch processing. Also, the account balance before and after entries should match. Suspense and clearing accounts should also have zero balances. This automated report will give you a visual representation of the overall financial health of your company.
They keep track of account balances as debits and credits are posted
General ledgers are used by businesses to track account balances as debits and credits are recorded. The financial statements that a company prepares can provide a high-level overview of its performance and position, but they do not provide detailed information on individual accounts. An accountant will use the general ledger to analyze the numbers and spot errors. When debits and credits are equal, the balance of the general ledger remains the same.
The general ledger is divided into accounts that sort business transactions. Several dozens of accounts are used. These accounts are called entries. Transactions are recorded in these accounts according to the type of transaction. Most accounts fall into five broad categories. Transactions may affect the balance of these accounts, including cash purchases and debtor payments. A general ledger should always have an equal balance of debits and credits.
They are easier to maintain
One of the reasons general ledgers are easier to maintain is because each accounting transaction affects both the balance sheet and income statement. For example, when a company bills a client $500 for a product or service, the accountant will enter the transaction by increasing accounts receivable, the balance sheet account, and revenue, the income statement account. This way, the debits and credits increase by the same amount, and the totals stay balanced.
Having an organized accounting system is essential for a business. Not only are financial records essential for management and shareholders, but they’re also crucial for tax planning. Without a clear picture of a business’s finances, it’s easy to overspend or not pay taxes if you have not maintained your records properly. Additionally, maintaining a general ledger allows for trial balances, which will enable you to investigate errors or identify fraudulent activity.
In conclusion, General Ledger is a critical component of accounting and financial reporting. It is used to track all financial transactions for a business, which allows for accurate financial statements and insights into the company’s overall performance. General Ledger is an essential tool for businesses of all sizes and should be implemented as soon as possible.