A General Ledger (GL) contains every financial transaction recorded during any given account period (also known as account cycle). Nowadays, businesses record their account data electronically on software such as QuickBooks. But, before records were stored electronically, businesses hand wrote all their transactions in what we call “books” for each account. All these books combined were called General Ledger (GL). General Ledgers use the double-entry system of accounting. This means that for every transaction, it will be recorded on two different accounts. After a General Ledger is complete, it is then used to create financial statements.
Fortunately, accounting based software exists today. This means that business owners, accountants, or bookkeepers can spend less time manually inputting financial transactions, spend more time growing their business, and analyzing that data to make important financial decisions. There are tons of affordable accounting software options on the market today, such as QuickBooks. We recommend taking the time to research what type of features that are offered throughout the software that best fits your company’s needs. There is no need to buy the costliest software with a multitude of features that do not apply to your company. Last but not least, we recommend having an accountant who is familiar with that software set it up for you. Improper setup can cause hours of pressing the ‘delete’ button.
Before anything is posted in General Ledger, it is first recorded in journals, also known as the “Books of Original Entry.” Nothing is posted in the GL before being recorded in its original journal. Every financial account has an assigned journal to it, and every time you record a transaction, it is called making a “journal entry.” Generally speaking, this is where a bookkeeper comes in handy. Although this job may sound monotonous, it is incredibly important. Depending on the size of your company, you may have a team of bookkeepers inputting daily transactions or a sole bookkeeper.
Double Entry System of Accounting
Every time a transaction is recorded, it will be recorded twice in two separate accounts. It will be debited to one account and credited to another. Every account is going to have two columns: Credits to the left and debits to the right. Depending on the nature of the account, they will either increase or decrease. There are five types of main accounts: Assets, Liabilities, Income, Expenses, and Equity. Remember, for every transaction you record (whether that may be a sale or purchase); it’s going to be recorded in at least 2 of those main five accounts. For example: Say you own a convenience store, and you are out of beer. You buy $1000 worth of beer wholesale from the factory- your cash account is going to decrease $1000. This is shown by crediting the account on the right-hand side for that amount. Now, you have $1000 worth of beer to sell, so your asset account is going to be debited on the left-hand side for that amount. Now the books are balanced. If the books come out with a number other than 0 by the end of a cycle, an error was made during a journal entry.
It’s the end of the accounting cycle, and you are ready to create your financial statements. More times than not, some errors were generated during journal entries. This is the purpose of a trial balance. The word “trial” is what it sounds like. It’s a list of all the accounts with the balances next to them. This is where you can see if any mistakes were produced when debiting and crediting accounts using the Double Entry System of Accounting. Remember, the balance must be zero, or an error has been created. By completing a trial balance, you are one step closer to producing exact financial statements. The larger your company grows and depending on the nature of your sales, (a house cleaning company vs. a supermarket), your accounts will differ. The house cleaning company which offers a single service, is going to have a much less complicated GL compared to the chain supermarket that has hundreds of vendors and employees. Be prepared for when your company grows!About Complete Controller® – America’s Bookkeeping Experts Complete Controller is the Nation’s Leader in virtual bookkeeping, providing service to businesses and households alike. Utilizing Complete Controller’s technology, clients gain access to a cloud-hosted desktop where their entire team and tax accountant may access the QuickBooks™️ file, critical financial documents, and back-office tools in an efficient and secure environment. Complete Controller’s team of certified US-based accounting professionals provide bookkeeping, record storage, performance reporting, and controller services including training, cash-flow management, budgeting and forecasting, process and controls advisement, and bill-pay. With flat-rate service plans, Complete Controller is the most cost-effective expert accounting solution for business, family-office, trusts, and households of any size or complexity.