What Is a General Ledger and Why Do You Need One?

What Is a General Ledger and Why Do You Need One?

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The general ledger summarizes a company’s financial position. It maintains records of data for accounting teams tasked with bookkeeping, providing status updates on the company’s cash position and recording the information needed for financial statements.

What is a General Ledger?

A general ledger is a record of a company’s, and its subsidiaries’, assets, liabilities, expenses, income and equities. General ledgers are generally broken down into records of accounts and account balances and financial transactions.

What is the Importance of a General Ledger?

Accurate data is not only essential to making informed business decisions, but also financial forecasts that business leaders, funders, potential buyers, auditors and other stakeholders depend on to analyze the financial state of the organization.

What Exactly Does a General Ledger Tell You?

A general ledger offers a summary of the financial health of the business. It helps to formulate content used in financial statements such as liabilities, equity, assets, revenue and expenses.  

Today’s modern general ledger software is more advanced. They can automate reporting for management and provide the detailed information needed to analyze an anomaly in the business and historical transactional data to use in annual budgeting processes.

What’s the Difference Between General Ledgers & Financial Statements?

A general ledger is the core of your company’s financial records, tracking every transaction from the first day of your company’s history. A financial statement is not recorded in as much detail as a general ledger. It is a snapshot of a company’s financial health in terms of assets and liabilities at a certain point in time.

4 Reasons Why You Need a General Ledger

Aside from aiding business decisions and financial projections, a general ledger is a foundational element of accounting, creating better bookkeeping practices that can likely result in a higher valuation and easier audits. Let’s take a look at some reasons why you need one:

  1. Financial transaction accuracy: Recording transactions and statistical data helps in planning business needs such as inventory purchases, how to price products and how the business will finance those needs.
  1. Balancing books: Above all, a general ledger ensures that the books balance. The trial balance makes sure accountants can spot any mistakes and fix them with ease.
  1. Ease of filing taxes: General ledgers make sure all financial information is correct for accurate financial statements that enable the business to make financial projections and planning.
  1. Identifying & stopping fraud: Keeping good financial records helps the business identify fraudulent transactions and remedy them before they become major issues.

When In Doubt, Reach Out!

Sprout Asia offers budget-friendly accounting services to allow you to focus on what you do best, while we take care of the rest! Feel free to contact our team and receive a complimentary consultation to discuss your corporate service needs. We’ll respond within 24 hours.