Every business, irrespective of its size or industry, must maintain accurate financial records. These records monitor performance and ensure compliance with regulations, especially during tax filing in Singapore. One of the most essential tools in this process is the General Ledger. But what is a general ledger exactly? And why is it crucial for your business? In this blog, we’ll walk you through the general ledger’s meaning and why it plays a pivotal role in good accounting practices.

General Ledger vs. Subsidiary Ledger – What’s the Difference?

Before delving deeper into the topic, it’s essential to differentiate between the two commonly confused terms: the general ledger and the subsidiary ledger. What do you mean by a general ledger? A general ledger is a complete and accurate record of all financial transactions a business makes, summarised by account. It gives a comprehensive view of your company’s financial health and is used to prepare key financial reports like the balance sheet and income statement. Whereas, a subsidiary ledger provides detailed information for a specific general ledger account. For example, the accounts receivable subsidiary ledger provides transaction details for individual customers, whereas the general ledger simply displays the total accounts receivable balance. In simple terms, if the general ledger is the “movie on the big screen,” subsidiary ledgers are the “trailers.”

The Purpose of a General Ledger in Accounting

So, what is the purpose of the general ledger in accounting? In simple terms, a general ledger is used to:

• Organise all financial transactions in one place
• Classify transactions into accounts (e.g., cash, sales, expenses)
• Provide the basis for generating financial statements.
• Maintain accurate tax filings and audits.

Why Every Business Needs a General Ledger

Without a general ledger, businesses won’t be able to understand their financial position. Here’s why it’s a mandate:

• Tracking financial performance: Whether you’re checking cash flow or analysing your profit/loss position, a general ledger shows how money flows in and out of the business.
• Meeting legal obligations: Specifically for companies involved in tax filing in Singapore, as per ACRA, accurate records are required by law.
• Preventing fraud and errors: Discrepancies, errors, and fraud can be quickly identified and addressed when transactions are accurately recorded and documented.

How It Supports Financial Accuracy and Compliance

The general ledger ensures financial accuracy by enabling double-entry bookkeeping – every transaction has both a debit and a credit side. This helps keep books balanced and catches errors early. Plus, when it comes time for tax filing, you’ll have complete, accurate, and organised records ready for auditors or IRAS in Singapore.

Components of a General Ledger Report

A general ledger report is a summary of your financial transactions, grouped by accounts. Typically, it includes:

• Account Name/Number: e.g., 101 – Cash
• Date of Transaction
• Description/Reference
• Debits and Credits
• Running Balance

These details ensure transparency and help stakeholders understand your company’s financial standing at any given time.

How to Prepare a General Ledger

If you’re wondering how to prepare a general ledger, here are the steps:

• Set up your chart of accounts: This is the list of all accounts (e.g., assets, liabilities, revenues, expenses) used in your business.
• Record journal entries: Every transaction is first entered in the journal, detailing debits and credits.
• Post to the ledger: Transfer the journal entries into the appropriate general ledger accounts.
• Calculate balances: Each account’s balance is updated with every entry.
• Generate trial balance: To check if total debits equal total credits – a key indicator of accuracy.

While manual methods, such as those using paper or Excel, are still employed by some small businesses, most companies rely on accounting software or corporate services providers for increased efficiency and accuracy.

Benefits of Maintaining a General Ledger

Keeping a general ledger might seem tedious, but the benefits are substantial.

Better Budgeting and Decision-Making

With accurate, up-to-date general ledger detail, businesses can track spending, forecast revenue, and make informed financial decisions. You’ll know when to reduce costs, increase investment, or seek funding.

Easier Audit and Tax Filing Compliance

For companies handling tax filings in Singapore, maintaining a general ledger significantly simplifies compliance. All records are readily available for inspection, which helps you avoid penalties and ensures timely filing. Additionally, auditors use the general ledger to verify transactions and assess the financial integrity of your business.

Identifying and Stopping Frauds

Frauds can be identified and prevented using a general ledger. As a single source of truth, it makes it easier for auditors and accountants to track and trace a transaction. When something doesn’t add up, they can simply refer to the ledger itself and identify the culprit before it gets too late.

Common General Ledger Mistakes to Avoid

Even a small mistake in your general ledger can pivot into serious problems. Here are common errors to watch out for:

• Incorrect account classification: Recording a marketing expense under office supplies, for example, can distort reports.
• Not reconciling regularly: Failing to match the ledger with bank statements or not preparing trial balances regularly leads to inaccuracies.
• Skipping journal entries: If a transaction is missed, your general ledger and financial reports will be incomplete.
• Relying solely on spreadsheets: Excel is useful but error-prone for large volumes of data. Use reliable accounting software or partner with a corporate services firm like Lanturn.