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General Ledger

According to Investopedia a general ledger represents the record-keeping system for a company’s financial data with debit and credit account records validated by a trail balance – a bookkeeping worksheet. The general ledger provides a record of each financial transaction that takes place during the life of an operating company.

In simpler terms, the general ledger is the regular record of transactions that are eventually needed to prepare the financial statements of the company. As the investments, expenses, marketing, growth and other business decisions are all dependent on these financial statements, we can say it that the general ledger is the key factor that leads to the financial record keeping and decision making of the company.

What constitutes a general ledger?

A good general ledger account will have sorted and summarized records of a company’s transactions. Assets and liabilities are to be distinguished and recorded, as are the expenses and revenues. Likewise, the shareholders’ data, the internal and external investments, and the details of any borrowings by a company are also recorded in these very ledgers. The most important point to remember here is that every single transaction conducted by a company has two accounts – under the double entry system. For example if you make a sale of a product, your revenue account (cash or accounts receivables) will have an entry as does your product (asset) account. It is this general ledger that ensures accurate entries, and therefore accurate financial records for a business.

What is accounted for in a general ledger?

There are two main classifications for the sections in the general ledger, called Balance Sheet accounts and Income Statement accounts.

Balance Sheet accounts:

  • Assets (current and long-term); these may include equipment, land, properties, accounts receivables, debtors, cash and so on.
  • Liabilities (current and long-term); these may include short and medium term loans, accounts payables, creditors, and so on.
  • Stock holder’s equity; this includes the common stock and any savings or retained earnings.

Income Statement accounts:

  • Operating revenues; these are simply the sales and service fees a company makes by selling their products or services.
  • Non-operating revenues; these are the revenues made from sources other than direct sales, such as interest income on any investments, any gains made on selling of assets and so on.
  • Operating expenses; these are the costs that go into producing and selling the company’s products and services and also includes salaries, rent, utility bills, as well as non-cash expenses like depreciation and amortization.
There is one more account that needs to be maintained and that is Cash flow statement. This is simply the record of actual realized financial transactions where money changes hands, either in the form of cash or other equal liquid assets like bank checks.

Why outsourcing is better for general ledger accounting?

The explanation given above clarifies the significance of general ledger keeping for any business. It goes without saying then that any errors in the statements can accumulate into massive losses, tax miscalculations leading to penalties and even faulty investment decisions. The loss of repute and relations with customers and suppliers is another thing coming with inaccurate accounting records. Therefore, it is best left to experts to maintain such books. There are more benefits to gain still, through outsourcing. These are:

  • Since you will get your ledger entries, your regular staff will not need to keep any extra books for financial statements at the end of the annual, semi-annual, or quarterly periods.
  • Your time, effort, and cost will be reduced which could be spent on activities directly contributing to revenue generation and profit maximization.
  • The need for investment in expensive software or keeping a team to operate that will also be gone.
  • You will have all financial details of your company and transactions on your finger tips to be used as and when needed.
  • You will have error free statements that will add to ease of doing business, better communication with your team and partners, and more sound financial decisions for the company.
  • You will always be aware of the financial health of your company and your managers and proprietors will not have to wait for accurate and timely information in case a growth or expansion opportunity arises.
  • You will have constant access to legally compliant and complete financial reports to be submitted for auditing any time of the year removing the costs and worries of any legal repercussions.
  • Certified accountants will be able to you at only a fraction of the cost through outsourcing as compared to hiring them permanently on your staff.

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