The General Ledger

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A company's general ledger is kept to avoid making careless errors in financial reports, to track financial purchases and to provide evidence of the company's transactions. The general ledger is a summary of all of the transactions that occur in the company. It is taken directly from the general journal, where each transaction is initially recorded in chronological order. All of the best accounting software includes a general ledgar that can be shared with your accountant.

Why is the general ledger important?

The balance sheet and the profit/loss statement are both derived from the general ledger, which are the two most important financial documents in your company. Because it is organized by accounts, the general ledger allows you to observe the activity in any account at any given time. The general ledger is where posting occurs, which is the process of recording credits and debits in the general ledger.

How is the general ledger organized?

The general ledger is usually organized into T-accounts showing both debits and credits of every account. It should include the date, description and balance entries for each account. It is usually divided into at least five main categories. These categories generally include assets, liabilities, equity, revenue and expenses. The main categories of the general ledger may be subdivided into subledgers to include details such as cash, accounts payable, accounts receivable, etc.

Important recording entry tips.

First, credits always equal debits. This means that there should always be two entries into the general ledger for each transaction. Next, when an item is posted to a subledger, you should always post it to the general ledger as well. You should be able to access all important information from the general ledger. Also remember to keep all of your source documents. These are the papers that support your transactions such as, shipping orders, bank statements, payroll and other paper evidence of your transactions

The general ledger is an important tool for keeping your accounts organized and providing proof of your expenditures. It can be used to correct errors in accounts, observe company activity and can help you make wise financial decisions to better guarantee your business's future.

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References

Businesstown.com: Accounting: Basic Accounting -General Ledger. (2004).

FMS.treas.gov: USSGL Standard General Ledger. Financial Management Service, a Bureau of the United States Department of the Treasury. (2005).

QuickMBA.com: The General Ledger. (2004).