Handwritten Accounting ledger showing bookkeeping using pencil and calculator.
With the advent of accounting back in time, one of the most prominent words that made its way into the business dictionary was bookkeeping. Bookkeeping, in its broadest terms, is the process of keeping a record of all financial transactions of the business. This process requires drawing up several accounts that contain various transactions taking place within the business. The process of bookkeeping in accounting has been a tedious task since its inception, as it requires drawing up several individual t-accounts to record journal entries for the five major accounting elements – assets, liabilities, capital, expenses, and revenues. An important and commonly used classification is that of Ledgers, General Ledger and Sub Ledger. In order to advance the discussion on General Ledger, a brief description regarding the functionality of the ledgers is necessary.

What is a Ledger?

In accounting, a ledger refers to a record of transactions documented in a chronological order. These transactions are captured from the journal and are organized by account heads. These ledgers basically provide a historical and current summary of each transaction related to a specific account. This summary is considered to be the most reliable source for drawing up the financial statement at the year end. For instance, the sales ledger has all the sales related transactions. Sales return ledger maintains transactions related to sales returns. Therefore, the sales figure displayed onto the Profit and Loss Account may be verified from the sales ledger directly.

What is a General Ledger?

As previously identified, cash related transactions will have their own cash ledger and sales related transactions will be contained in a sales ledger. The General Ledger is one big master account that comprises of data from these individual ledgers, compiled together, in a single format. The General Ledger is also known as the book of final entry. The General Ledger is used to post information on financial statements – Balance Sheet and Profit and Loss Account of the business.

Sub Ledgers is yet another related category in accounting and bookkeeping, sometimes known as the subsidiary ledgers. Updating the sub ledger is similar to updating a General Ledger, however, unlike the General Ledger, Sub Ledger comprises of just a few accounts.

Format of a General Ledger

In recent times, automation and use of accounting software has made the traditional form of bookkeeping outdated. Traditionally, a General Ledger used to resemble a register or book, where all the transactional data was kept. Each account would occupy one page in the General Ledger and the General Ledger comprised of all accounts mentioned in the Chart of Accounts.

The format of a General Ledger included five different columns for each heading. The main headings would include Date, Transaction Details, Debit, Credit, and Balance. The header would usually include the name of the account and its given number. An updated General Ledger would demonstrate the current balance of each account as on that particular date.

Accounting Software

For all businesses, a traditional depiction of the General Ledger is likely to be more comprehensive, as given above. In the present era, traditional bookkeeping has become obsolete. The introduction of accounting software has made accounting and bookkeeping an automated process where numerous business transactions may be recorded and posted to their respective accounts simultaneously, without the need to manually post entries into the relevant account heads. This allows for speed, accuracy and cost saving. Enterprise Resource Planning (ERP) solutions, such as SAP and Oracle, have revolutionized the accounting world at its core. The computer software automatically posts entries onto the General Ledger from the respective account ledgers and calculates the current balances according to the specified date. 

Hence, understanding the functionality as well as the structure of a General Ledger is crucial to business accounting procedures. The simplest form of its explanation has been provided here.

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About Complete Controller® – America’s Bookkeeping Experts Complete Controller is the Nation’s Leader in virtual accounting, providing services 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 and critical financial documents in an efficient and secure environment. Complete Controller’s team of  US based accounting professionals are certified QuickBooksTMProAdvisor’s providing bookkeeping and controller services including training, full or partial-service bookkeeping, cash-flow management, budgeting and forecasting, vendor and receivables management, process and controls advisement, and customized reporting. Offering flat rate pricing, Complete Controller is the most cost effective expert accounting solution for business, family office, trusts, and households of any size or complexity.

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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.

Today’s Technology Check out America's Best Bookkeepers

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.

Preparing for a General Ledger Check out America's Best Bookkeepers

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. Check out America's Best Bookkeepers

Trial Balance

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! 

Check out America's Best Bookkeepers 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. Check out America's Best Bookkeepers