The General Ledger (GL) is one of the main components of a business' bookkeeping system. It is utilized every time a company records a transaction. Let’s dive in and take a closer look at the purpose of the GL and why it's so important.
What is the General Ledger?
The GL is the master document that shows all of your company’s financial records. It is where every single business transaction is categorized and summarized.
If your Chart of Accounts (CoA) is the list of folders your company uses to organize cash flow within the business, the General Ledger is the pile of records created by your business that need to be organized into the folders.
The GL is where you record your company’s transactions, the COA is how you organize them.
Why is the General Ledger important?
The GL is important because it is a full list of financial transactions your business has made for any period of time. It is a detailed list of your company’s activities and a one-stop-shop to find any transaction your business has performed.
Financial statements are used to help understand your business’ performance, financial health, and cash flow. They are generated from the information in your General Ledger. We will unpack financial statements in another post but the point here is, if viewing your financial performance is important, then the General Ledger is important.
The GL eases the investigation of possible accounting errors, such as income and expense discrepancies. If you notice you had a sudden spike in your office supplies expense when compared to previous months, you can dive into the General Ledger to either confirm each expense or correct the error.
When combined with a good Chart of Accounts, your General Ledger will provide a clear and accurate picture of your business’ performance which can be used to improve profit and minimize spending.
Accessing the General Ledger
So, how do you access it? If you are using accounting software such as Quickbooks or Xero, it is less a matter of accessing the General Ledgers and more a matter of running a report. You see, every time you record an invoice, bill, payment, sale, etc., the software records the entry into your General Ledger for you. You can then pull the software’s GL report when you need access for transaction confirmation or investigation purposes.
There are some exceptions which will require recording entries in your General Ledger when using accounting software. That is to say, your accounting software won't automatically record it into the GL for you. Long-term asset depreciation, allocation of prepaid expenses, and adjustments for current portions of long-term debt are some examples of such situations. When these arise you will need to record a Journal Entry (JE). We will discuss JE at another time but for now note that a Journal Entry is the actual act of recording a transaction to the General Ledger. Your software will provide you with the ability to add these to your books whenever it is required.
Worry Free approach to The General Ledger
If you don’t feel like worrying about your General Ledger, you can always hire a bookkeeper. They will take care of everything for you, including running financial statements, looking into discrepancies, and answering any questions you may have in regards to the GL.
In Summary..
Your General Ledger is your company’s financial records in full. It is where you categorize and summarize every single transaction it performs. It provides a one-stop-shop for you to see how your business is spending and making money over any period of time. With it, you can investigate errors and discrepancies. The General Ledger is used to generate your financial reports, providing a clear picture of your business’ performance and health. Use of the GL can be time consuming. If you find that you would like to spend more time in other parts of your business or personal life, feel free to schedule a no-cost consult.