General Ledger: Structure & Function

General Ledger Structure & Function- Complete Controller

With the advent of accounting, one of the most prominent words in the business dictionary was bookkeeping. Bookkeeping, in its broadest terms, is the process of keeping a record of all business financial transactions. This process requires drawing up several accounts that contain various transactions taking place within the business.

The bookkeeping process 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 ledgers, and sub-ledgers. To advance the discussion on general ledgers, a brief description regarding the functionality of the ledgers is necessary.Complete Controller. America’s Bookkeeping Experts

What is a Ledger?

In accounting, a ledger refers to a record of transactions documented in chronological order. 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 considered the most reliable source for drawing up the financial statement at the year’s 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 in the profit and loss account may be verified directly 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. The general ledger is one big master account comprising data from these individual ledgers, compiled in a single format. The general ledger is also known as the book of final entry. The general ledger posts information on financial statements, balance sheets, and business profit and loss accounts.CorpNet. Start A New Business Now

Subledgers are another related accounting and bookkeeping category, sometimes known as subsidiary ledgers. Updating the sub-ledger is similar to updating a general ledger; however, unlike a general Ledger, the 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 resembled a register or book, where all the transactional data was kept. Each account would occupy one page in the general ledger, comprising all accounts mentioned in the chart of accounts.

The format of a general ledger included five different columns for each heading. The main headings 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 particular date.

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As given above, a traditional depiction of the general ledger will likely be more comprehensive for all businesses. In the present era, traditional bookkeeping has become obsolete. The introduction of accounting software has made accounting and bookkeeping an automated process where numerous business transactions may be recorded and posted to their respective accounts simultaneously without manually posting entries into the relevant account heads.

This allows for speed, accuracy, and cost savings. 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 the general ledger from the respective account ledgers and calculates the current balances according to the specified date. 

Hence, understanding the functionality and structure of a general ledger is crucial to business accounting procedures. The simplest form of its explanation has been provided here.

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