The General Ledger
What is a General Ledger?
Simply put, the general ledger is a master document that summarizes all your business transactions. Traditionally, transactions would be recorded in a ledger by hand. However, many businesses today create a general ledger using a spreadsheet or accounting software. Your ledger may look different than it used to, but its importance remains the same.
How to Record Entries in the General Ledger
General ledgers use the double-entry bookkeeping system. When transactions are made, they are first recorded as journal entries in your journals. These entries include the date, description, name, and number of accounts affected, a reference number, and the debit and credit amount.
Unlike the journals, which are organized chronologically, the general ledger is organized by account. The five main accounts are assets, liabilities, owners’ equity, revenue, and expenses. In addition to these main accounts, the general ledger includes sub-accounts based on your chart of accounts, such as cash, accounts receivable, inventory, and accounts payable.
Once recorded in your journals, you calculate the total balance of each account at the end of the month and report it on the general ledger. This allows you to have an idea of where your business stands at the end of each period. When you total the accounts, it’s important to ensure that the accounting equation is in balance by checking that the total debits equal the total credits posted in the general ledger.
Using accounting software, such as QuickBooks, makes the bookkeeping process a lot simpler and reduces the possibility of errors. Typically, all you have to do is post transactions in the software and it will automatically create journal entries, calculate account totals for you, and summarize them on your general ledger. This can save you a lot of time and makes it easier to avoid mistakes when transferring transactions across different documents.
Why is the General Ledger Important?
If you need to refer to a business transaction, the general ledger is the best place to go. Information on the ledger will help you create financial statements, file tax returns, and perform trial balances to ensure accuracy in your bookkeeping. The general ledger can also help you spot unusual transactions and fraud. As you can see, it is quite an essential resource for your business!
Do you need help keeping your books? Our bookkeepers are here to help! Contact us or give us a call at (360) 756-5020.