With the advent of accounting back in time, one of the most prominent words that made its way into the business dictionary was bookkeeping. In its broadest terms, bookkeeping is the process of keeping a record of all financial transactions of the business. This process requires drawing up several accounts containing various transactions within the company. The process of bookkeeping in accounting has been a tedious task since its inception, as it requires drawing up several individual t-accounts to record journal entries for the five major accounting elements – assets, liabilities, capital, expenses, and revenues. An essential and commonly used classification is that of Ledgers, General Ledger, and Sub Ledger. To advance the discussion on General Ledger, a brief description regarding the functionality of the ledgers is necessary.
What is a Ledger?
A ledger refers to a record of transactions documented in chronological order in accounting. These transactions are captured from the journal and are organized by account heads. These ledgers provide a historical and current summary of each transaction related to a specific account. This summary is the most reliable source for drawing up the financial statement at the year-end. For instance, the sales ledger has all the sales-related transactions. The sales return ledger maintains transactions related to sales returns. Therefore, the sales figure displayed on the Profit and Loss Account may be directly verified from the sales ledger.
What is a General Ledger?
As previously identified, cash-related transactions will have their cash ledger, and sales-related transactions will be contained in a sales ledger. General Ledger is one big master account that comprises data from these individual ledgers, compiled in a single format. General Ledger is also known as the book of final entry. General Ledger is used to posting information on financial statements – Balance Sheet and Profit and Loss Account of the business.
Sub Ledgers are yet another related category in accounting and bookkeeping, sometimes known as the subsidiary ledgers. Updating the sub-ledger is like updating a General Ledger. However, unlike General Ledger, Sub Ledger comprises just a few accounts.
Format of a General Ledger
In recent times, automation and the use of accounting software have made the traditional form of bookkeeping outdated. Traditionally, a General Ledger used to resemble a register or book, where all the transactional data was kept. Each account would occupy one page in General Ledger and General Ledger comprised of all accounts mentioned in the Chart of Accounts.
The format of a General Ledger included five different columns for each heading. The main headings would include Date, Transaction Details, Debit, Credit, and Balance. The header would usually include the name of the account and its given number. An updated General Ledger would demonstrate the current balance of each account as of that date.
A traditional depiction of General Ledger is likely to be more comprehensive for all businesses, as given above. In the present era, traditional bookkeeping has become obsolete. The introduction of accounting software has made accounting and bookkeeping an automated process. Numerous business transactions may be recorded and posted to their respective accounts simultaneously, without the need to manually post entries into the relevant account heads. This allows for speed, accuracy, and cost-saving. Enterprise Resource Planning (ERP) solutions, such as SAP and Oracle, have revolutionized the accounting world at its core. The computer software automatically posts entries onto General Ledger from the respective account ledgers and calculates the current balances according to the specified date.
Hence, understanding the functionality as well as the structure of a General Ledger is crucial to business accounting procedures. The simplest form of its explanation has been provided here.About Complete Controller® – America’s Bookkeeping Experts Complete Controller is the Nation’s Leader in virtual bookkeeping, providing service to businesses and households alike. Utilizing Complete Controller’s technology, clients gain access to a cloud platform where their QuickBooks™️ file, critical financial documents, and back-office tools are hosted in an efficient SSO environment. Complete Controller’s team of certified US-based accounting professionals provide bookkeeping, record storage, performance reporting, and controller services including training, cash-flow management, budgeting and forecasting, process and controls advisement, and bill-pay. With flat-rate service plans, Complete Controller is the most cost-effective expert accounting solution for business, family-office, trusts, and households of any size or complexity.