Maintaining a general ledger is one of the most important tasks of bookkeeping. The general ledger is a complete record of a company’s financial transactions, since its inception. It plays the role of a tracker, helping managers to keep accurate financial records and prepare tax sheets. It is useful to track a company’s assets, liabilities, equity accounts, and other financials using the general ledger.
The General Ledger helps:
- Ascertain the company’s financial status and health, and that of individual accounts, to identify opportunities for reinvestment.
- Prepare the trading account statement, profit and loss statement, and the balance sheet.
- Monitor the use of classified accounts.
- Gain statistical information that can be leveraged when taking financial decisions.
- Identify changes in revenue flow and if there is need for a new cash management strategy.
Parts of the General Ledger
A general ledger consists of documents for all main accounts associated with a business. It includes assets (both current and fixed), liabilities (long-term and current), owner equity, expenses, sales, and profit and loss. For each of these accounts, there are four subdivisions.
- Includes money available in cash, physical assets like equipment, and accounts receivables.
- Sometimes, it may also include the manufacturing place, or any patents or trademarks through which there is an income.
- Includes money that has to be paid as salaries, accounts payable, or any other transaction.
- Money owed as debt now, or in the future, comes under the liability category.
- Includes the capital invested into the business.
- It covers the remaining money that is listed under owner’s “capital” or “equity” account.
- Includes entries made to correct errors, close temporary accounts, and journal entries.
The key to getting a clear and accurate picture of the company’s transactions over a period of time, is to keep the ledger updated regularly. It requires bookkeepers to record transactions in the right journals, at least once a month. This way finance managers can spot changes and review them for accuracy. It saves a lot of time and effort when filing for tax returns, and a well-constructed ledger is the foundation for preparing all the financial statements. For SMBs, it is the right document that demonstrates to other stakeholders how serious they are about their business.
Today’s business world is fast-paced, demanding SMBs to juggle a number of tasks to the keep revenue flowing. Bookkeeping can be an arduous, time-consuming and intimidating task for small to medium businesses, especially new businesses. A qualified accounting and bookkeeping partner can help you focus on growing your business, easing this burden, while your financials are in safe hands. With over a decade of accounting and bookkeeping experience, SmartFin, offers end-to-end accounting and consulting services. Get in touch with us if you want to move your accounting into expert hands.