Introduction Of General Ledger
General Ledger is the most essential part of any business’s bookkeeping. It records and maintains all the information about the financial transactions of the company including assets, liabilities, revenues, expenses, and capital. It is used by accountants, investors, and stakeholders of the company to assess its financial performance. Moreover, the data that the general ledger maintains is the most important because it shows all of the transactions that have taken place during the business operations of that company.
In this article, we’ll examine the main components of general ledger accounting and how they assist in managing finances efficiently.
Key Features Of General Ledger
- General Ledger Accounting uses a double-entry accounting system which means it has two-sided accounting entries in order to maintain the financial information. In double-entry accounting, every entry from an account has a corresponding and opposite entry to a different account.
- The equation used in general ledger bookkeeping is that the sum of liabilities and equity should equal the assets (Liabilities + Equity = Assets). Hence, the difference between the assets and liabilities determines the net ownership of owners in the business.
- The entries in the general ledger are added as either debit or credit. Debit refers to an entry that either creates an increase in assets or a decrease in liabilities. Credit refers to that accounting entry that creates an increase in liabilities or a decrease in assets. In double-entry bookkeeping, every debit entry or transaction has a corresponding credit entry.
- General ledger data is essential for creating a variety of financial papers that demonstrate the way an organization is doing financially and track any changes over time. General ledger data enables the creation of income statements, balance sheets, and financial statements that proprietors of small enterprises, investors, and stockholders may require.
- The general ledger has transactions regarding five different categories that include assets, liabilities, revenue, expense, and capital. Each category has debit and credit entries that represent their respective transactions. Accounts receivable, cash, fixed assets, investments, and inventory make up the majority of the asset accounts. Accounts such as accumulated costs payable, notes payable, and accounts payable are included under liabilities.
- General ledger records for a particular time period show the general ledger and associated activity. Companies consult records from general ledgers for a particular quarter, year, or month to get a fuller sense of their financial health. In addition, reports obtained from general ledgers assist in spotting any problems that may occur during bookkeeping and in preventing theft.
Benefits of Using General Ledger
There are many benefits to businesses that use a general ledger system of bookkeeping for their accounts.
- Using a general ledger accounting system provides complete records of all the business transactions in one place. The information is maintained in an organized manner and it is easy to use that data to make other financial reports such as the balance sheet and profit and loss statement.
- General Ledgers report the revenue and expenses of the company in real-time which makes it easier to keep track of the expenditure and stay on top of any future debit entries or payments.
- All the entries of revenue and expenses are organized and stored in one place making the process of tax filing much more efficient and less time-consuming.
- As all the information is stored in one place, compiling any particular set of data for separate documentation becomes easier.
Conclusion
General Ledger in the bookkeeping of accounts is a necessary and beneficial tool as it makes an accounting of the company easier, organized, and accessible. The double entry system ensures that every debit entry has a corresponding credit entry verifying the authenticity of the transaction. Also, it helps in balancing the balance sheet and reporting the exact amount of net profit or loss in the profit and loss statement. It not only helps in maintaining information but also lets you assess the financial performance of your company in any given time period in order to ensure its profitable operation and functioning.
FAQ’s
A general ledger is the central grouping of all the accounts that list every transaction made inside an organization.
General ledger accounting is essential to managing and preserving an organization’s financial information. It is a central repository for every economic transaction and offers helpful information about a company’s finances.
In a general ledger, debit refers to an entry that either creates an increase in assets or a decrease in liabilities whereas credit refers to that accounting entry that creates an increase in liabilities or a decrease in assets.
By offering a methodical and organized way to store and track financial activities, general ledger accounting improves the management of finances. It lets companies keep track of expenditures, control spending, spot financial irregularities, and uphold responsibility and openness in financial management.
