What is General Ledger?
In the double-entry bookkeeping system, General Ledger (GL) sorts, stores, and summarizes a business entity’s all transactions, except sales and purchases. It is the basis for the financial data of a business that incorporates all the necessary financial transactions data to prepare a company’s financial statements, i.e., balance sheet, income statement, statement of cash flows, and other financial reports.
- It is the summary of all the journal entries in the sub-ledger accounts validated by the trial balance before preparing the final financial statements of a company. In other words, it is the grouping of transaction data of similar nature like assets, liabilities, capital, income, expenses, etc.
- For auditors, it is an insight into a company’s financial affairs. It also facilitates Bank Reconciliation as all the transactions are available in a single place.
- Examples of General Ledger are Asset Accounts (Cash Account, Accounts Receivable, Inventory Account, etc.), Liability Accounts(Accounts Payable, Accrued Expenses, etc.), Capital Accounts(Retained Earnings, Treasury Stock, etc.).
How does a General Ledger Works?
- First, the entry of each transaction is made to individual sub-ledger accounts. Then the transactions are summarized to General Ledger; based on it, the trial balance is prepared that checks for errors. If required, the additional necessary entries will be made. This adjusted trial balance is the basis for preparing the financial statements.
- General Ledger is considered by analysts, investors, and other stakeholders to judge the performance and management of a company that impacts its position in the market. When a company records transactions like increased expenses during a financial year that affect its key financial metrics like net income, the financial statements data is not enough to know the entire story. Hence, General Ledgers are considered by many. Therefore, it is a matter of concern for every business, and they must maintain each and every account efficiently.
CPA Solutions for Automated Accounting Processes
It is imperative to maintain absolutely error-free financial statements. Small accounting errors can ruin all accounts. And accountants have to go back to General Ledger to check each and every detail of all recorded transactions individually to find and settle the issue. It involves reconsidering dozens of journal entries. A business can simplify its accounting processes by automating them, where transactions are recorded into respective ledgers in real-time without manual intervention.
CPA solutions from reputed financial consultants like BFAG can help a company in financials and GL Maintenance efficiently, and the company management can be devoted to its businesses instead of worrying about its accounting processes.
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