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

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Having good accounting and finance practices are crucial for every business. It is why the general ledger is an important tool to have to ensure this. General ledgers help stop discrepancies and uncounted loss of funds by recording a company’s financial account. This tool has existed since the beginning of the business world and has been a practice by many business people because of how helpful it can be. However, as technology continues to evolve, so does the way of storing it. What started as a leather-bound book with rows and figures has transformed into accounting software applications as common as Excel that you can access from your computer.

At its core, a general ledger functions as a record of all of a company’s assets, liabilities, expenses, income, and equities 一 summarising its financial position. It provides a single source of data for accountants and auditors whose job is to track the company’s financial health or audit transactions that happened.

Ledger entries include the date, a description, a general ledger code (which shows if it is an asset, liability, income, expense, or equity), the amount debited and credited, and the balance. This helps business stakeholders to make business decisions properly based on the business’ condition and forecast financial projections or statements accordingly. Aside from this, having a well-kept general ledger brings the following benefits.

The benefits of a general ledger:

Accurate Financial Transactions

A general ledger is used as a means to record transactions and statistical data for businesses. Often, these transactions come with details regarding the customers, orders, and inventory. This information is vital for companies in planning for inventory purchases, setting prices, securing financing, and generating financial reports.

Ease of Filing Taxes and Comply with the Law

Adequate bookkeeping is a necessity for all businesses. It ensures that financial information is correct for accurate financial statements needed for paying business licences or tax purposes. The detailed information also helps decision-makers make financial projections and business planning according to the state of one’s business.

Identifying and Stopping Frauds

Did you know that nearly half of companies have experienced fraud in the past two years? This can be fixed by using a general ledger. As a single source of truth, it makes it easier for auditors and accountants to track and trail a transaction. When something doesn’t add up, they can simply refer to the ledger itself and identify the culprit before it goes out of hand.

There’s no denying that having a healthy balance sheet is one of the lifebloods for businesses to operate. Therefore, having a general ledger is not an optional choice but a must. It enables companies to keep track of their finances in real-time which assists them in taking the right business steps and strategy.

Accounting is one of Lanturn’s specialties, along with compliance, reporting, payroll, and tax. Contact us today.

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