• Susan Craig, at Content Writer


• 11.12.2022 06:45 pm
undisclosed

Any area of ​​business maintains accounting records to track all cash flows. But for this, you can not do without the main ledger. Previously, it had the appearance of a printed publication and was like a huge Talmud filled with important records. In this case, the practice of double recording was often used. But since the advent of technology, everything has been simplified - paper pages have turned into structured electronic Excel sheets and more manageable software. For example, according to research, about 64.4% of companies use ready-made software. Let's take a closer look at the definition of what a general ledger is and why it is needed.

General ledger: what is it

The general ledger is an essential attribute for the effective conduct of business throughout the entire period of its existence, with the help of which the state of the entire financial component is assessed. It contains data on all transactions carried out in the company, while all of them are categorized. Each transaction carried out is recorded in the appropriate part of the ledger, and with it, all accounting data is noted - loss, liabilities, dirty and net profit, assets, capital, and ledger reports. All this gives a complete picture of the financial affairs of the company and its subsidiaries.

In addition, each record is associated with another, so it is easy to audit and general analysis. It is also convenient for implementing a trial balance.

Some enterprises divide the ledger into separate components - account entry, financial transactions, and balance. Each of them also has a structure to facilitate the analysis processes. Larger enterprises may also implement additional ledgers to reduce the overall amount of data and make it easier to structure.

In fact, each company decides for itself how many accounting books will be kept overnight, and into what categories they will be divided. 

How does the general ledger work?

The book is based on a double-entry system. For this, data on the debit/credit (their ratio may be different, but in any case, there must be at least one entry for both types of transactions) and the total amount (information where the total account of debits and credits is balanced) are used. That is, when one sale is made, the company receives cash equivalent to the amount of revenue. And if the latter takes a loan from third parties, then there is an increase in the total amount of debt in the equivalent of a loan with an increase in the total amount of cash in the company by the same amount.

This whole system allows you to keep all cash transactions in full balance. 

Why do you need a ledger?

The general ledger is necessary for every enterprise, because. all financial statements are based on it. Without it, it is impossible to build any of the indicators and analyze what is prescribed in the financial statements. The book is also needed in the following cases:

• when filing tax returns - as it contains all data on income and expenses in a clearly structured system, which greatly simplifies the formation of a declaration;

• to assess trial balance trends – allows you to analyze data for a certain period of time and compare with data from another in order to understand whether there are non-standard, fraudulent, or erroneous transfers;

• for the convenience of viewing all financial data for a certain period of time - if we imagine that at the end of the year when analyzing the trial balance, the presence of an unexpected balance was determined, then when evaluating the book, it will be possible to identify all the detailed information about transactions for any period of time and take a certain action;

• to ensure the accuracy of operations - with the help of a complete set of all data on transactions, the path to building future forecasts, making the necessary purchases, budgeting, forming costs, and the necessary amount of financing will be facilitated;

• to help in determining the balance sheet - with it, accountants can easily evaluate all the data and find all possible errors;

• to ensure the security of transactions - timely identification of possible fraudulent transfers will prevent them or eliminate them before more aggravating problems develop. 

From all this, it follows that the general ledger is the main assistant for solving questions on business decisions, financial forecasts, and accounting.

Conclusion

The general ledger is an opportunity at any time to quickly and accurately analyze data, find and correct possible errors, as well as automate and simplify complex financial workflows. In fact, without the structured data that is contained in it, it is impossible to conduct any accounting processes. That is why the general ledger is an essential part of running any business.