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Business Accounting 101: What is a General Ledger?

Cash flow statements, balance sheets, and income statements are among the most commonly known types of financial statements when it comes to business accounting. Essentially, these statements show a business’ financial health and all of these come from bookkeeping activities.

This covers the recording or documenting of daily business transactions. You can find all these in the general ledger. Get a reputable financial and tax accountant here in West Jordan to help you out or else educate yourself on setting up your company’s accounting system.

But for now, let’s discuss the general ledger, which is basically a company’s primary accounting ledger.

What Exactly is a General Ledger?

The general ledger is essentially a record-keeping system utilized for storing, sorting, and summarizing the financial transactions of a company. This ledger contains a description of financial transactions with a column for the credit balance and one for the debit balance.

At the end of each month, which is typically the end of each reporting period, these two columns must be equal. This serves as the trial balance to help make certain that all entries in your bookkeeping system are accurate especially if you do double-entry bookkeeping.

Your general ledger should likewise contain five categories that will paint a clearer picture of your business’ overall financial health; these include:

  • Liabilities – These are obligations your company owes to other individuals or businesses such as leases, loans, lines of credit, mortgages, or employee payroll.
  • Assets – These are resources your company own that has economic value such as cash, equipment, property, inventory, patents, and trademarks.
  • Revenue – This is basically your company’s income that you’ve obtained from sales of your services and products. These include sales, royalties, interest, and other relevant fees your company collects from your customers.
  • Owner Equity – Essentially, this is the exact difference between the worth of your company’s liabilities and assets. For example, if this shows that your company’s obligations are higher than your assets, then you have negative equity, which is an indication of unprofitability. Put simply, your debt is higher than your assets, so you’re basically losing profit. Equity includes stock options or actual stocks for shareholders and business owners. These equities’ values increase over time as your company’s profitability and operations grow, which in turn raises your company’s value. Overall, this category spells out how much your business can use for investment opportunities. Think of it like some sort of bank account balance that tells you how much fortune or capital you have tucked away in your business.
  • Expenses – These typically include the cost of operating your business whether as payment for services and goods. The most common examples of these are utility bills and rent.

Making the Most Out of Your Company’s General Ledger

Female accountant at work

To maximize the most of all your financial reports and your general ledger, your accounting structure should be set up properly.

Having a proper accounting structure and system will enable you to monitor costs and sales of particular goods as well as track projects or services and the cost of sold goods.

You’ll likewise be able to monitor vendors and inventory and relevant things that will help you make more informed business decisions.