Every business transaction is recorded twice-once as money leaving an account (a credit) and again as money entering an account (a debit). It’s a way of managing your day-to-day transactions and stay on top of possible accounting errors. The general ledger and double-entry bookkeepingĭouble-entry bookkeeping is the most common accounting system for small businesses. Rather than combing through your bank statements, credit statements, and invoices when looking for one transaction, any stakeholder can just check the general ledger and see all accounting records in one place. The general ledger is where you can see every journal entry ever made. Change is hard, so we still call them journal entries today. When you record a financial transaction, it’s called a journal entry, because bookkeeping has always been done by hand, in journals. It gives you one place to view all your transactions In that case, checking your invoices against the general ledger will ensure you’re preparing the Form 1099 for them correctly. For instance, if you’re filing a Form 1099 for a contractor, you need to know how much you paid them during the financial year. You (or your accountant) need to refer to the general ledger in order to file your taxes. The general ledger matters because financial statements matter. There are three core types of financial statements useful to small business owners: the income statement, the balance sheet, and the cash flow statement. They draw on data compiled in the general ledger. It’s how you get financial statementsįinancial statements help you track your business’s financial performance and cash flow. There are three good reasons why the GL matters. When you hire a bookkeeper who understands your industry, they’re able to set up your books using sub-ledgers that make sense for you.Īs a supplement to the general ledger, your chart of accounts lists the account names and purposes of all your sub-ledgers. The sub-ledgers you use will depend on what type of business you run.
Accounts payable: money your business owes-an expense account.Accounts receivable: money owed to your business-an asset account.Here are some examples of common sub-ledgers: Then, you summarize that information in a master notebook-the general ledger. Sub-ledgers are like notebooks you use to write down business transactions as they happen. The money your business earns and spends is organized into subsidiary ledgers (also called sub-ledgers, or general ledger accounts). The different types of general ledger account Your income statement tracks your income, while your balance sheet tells you how much money you have and owe. Using the information above, you can create an income statement or balance sheet for your business. In this example, we’re looking at one month in the general ledger of an Etsy store that sells personalized hand puppets: DateĪmounts in brackets are expenses-reductions in equity. Here’s a very simple example of a general ledger, using the single-entry bookkeeping system (more on that later).
GENERALLEDGER PURPOSE SOFTWARE
But since bookkeeping by hand takes 1,000 times longer, most business owners and bookkeepers use accounting software to build their general ledgers. Of course, it’s still possible to do your bookkeeping with a paper ledger.
In the past, the general ledger was literally a ledger-a large book where financial data was recorded by hand. It lists every accounting transaction for you to review. The general ledger (also called a general journal or GL) summarizes all the financial information you have about your business.
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