In accounting, the general ledger is an important aspect of bookkeeping that verifies and documents where and how money is utilized within a business. General ledgers are important for assessing business cash flow, and in preparation of other financial documents that are distributed to corporate owners, managers and government regulatory authorities for financial disclosure and decision-making. General ledgers can be maintained using accounting software or via spreadsheets, and are ideally done so on a consistent basis. The following subtitled sections breakdown the general ledger into its component parts and principles.
• Credit and Debit accounts
Not all types of accounts in the general ledger work the same way. Some accounts are debit accounts and others are credit accounts. This means that value is subtracted from either the debit or credit side postings. If a general ledger T-Account is a debt account, it is increased by posting on the debit side and decreased on the credit side. The reverse is true for credit accounts. Debit accounts include assets and expenses whereas credit accounts include liabilities, owners equity and revenue. For an illustration of how posting in the general ledger is different for debit and credit accounts, consulting a guide to debit and credit on general ledger accounts can be helpful.
• Credit and Debit accounts
Not all types of accounts in the general ledger work the same way. Some accounts are debit accounts and others are credit accounts. This means that value is subtracted from either the debit or credit side postings. If a general ledger T-Account is a debt account, it is increased by posting on the debit side and decreased on the credit side. The reverse is true for credit accounts. Debit accounts include assets and expenses whereas credit accounts include liabilities, owners equity and revenue. For an illustration of how posting in the general ledger is different for debit and credit accounts, consulting a guide to debit and credit on general ledger accounts can be helpful.
• General ledger accuracy
Posting numbers in the general ledger is important in accounting. There is essentially no room for error when posting numbers in a general ledger because accounting is either right or wrong when it comes to implementing Generally Accepted Accounting Principles (GAAP) and standard methods of recording financial activity. An inaccurate general ledger can lead to fault financial decision-making, bad financial reporting and poor financial records. If posting in the general ledger includes more than one account, the value of the credit posts must equal that of the debit. The accuracy of a general ledger may be discovered in a failure to reconcile or through an accounting audit.
•Posting in the general ledger
Several different people may post in a general ledger depending on the size and type of organization. Larger organizations may have a networked general ledger with which many people can record flow of money within and without a business at the same time. Efficiently and quickly posting in the general ledger helps in the resolution of questions regarding business finances and in the reconciliation of accounts. All debit and credit accounts should balance i.e. equal each other in value. This process is called reconciling the general ledger. An example of a general ledger posting is as follows: An asset is paid for in cash and credit; in the initial posting total debit will be split between the asset and expense accounts, and the total credit will be divided between cash and accounts payable.
• T-Accounts
Since the general ledger consists of multiple accounts, an accountant or bookkeeper can specifically allocate cash flows by documenting the movement of money on a T-Account. The T-Account consists of columns and rows used for recording date, and account type in addition to whether money is debited or credited on that account. T-accounts are named such because the debit or credit columns are formed on either side of the T, and the top of the T is the line where the account name is placed. Some general ledger accounts may also be assigned numbers in addition to names. For example, in the following linked to California State Administrative Manual, general ledger asset accounts are numbered between 1100-1999.
• General ledger software
There are many standardized, cost effective and useful types of accounting software that include general ledgers. If a company has specific intranet network needs, an accounting software may need to be customized to work most efficiently for that company network. Other times a software such as Intuit Quickbooks may be sufficient, cost effective and time efficient for recording and management of general ledger data. Cloud computing software may also enable outsourced Information Technology management and expanded options for use of general ledgers. For example, recording of general ledger information from mobile hardware and outsourced maintenance of accounting software.
Since the general ledger consists of multiple accounts, an accountant or bookkeeper can specifically allocate cash flows by documenting the movement of money on a T-Account. The T-Account consists of columns and rows used for recording date, and account type in addition to whether money is debited or credited on that account. T-accounts are named such because the debit or credit columns are formed on either side of the T, and the top of the T is the line where the account name is placed. Some general ledger accounts may also be assigned numbers in addition to names. For example, in the following linked to California State Administrative Manual, general ledger asset accounts are numbered between 1100-1999.
• General ledger software
There are many standardized, cost effective and useful types of accounting software that include general ledgers. If a company has specific intranet network needs, an accounting software may need to be customized to work most efficiently for that company network. Other times a software such as Intuit Quickbooks may be sufficient, cost effective and time efficient for recording and management of general ledger data. Cloud computing software may also enable outsourced Information Technology management and expanded options for use of general ledgers. For example, recording of general ledger information from mobile hardware and outsourced maintenance of accounting software.
Sources:
1. http://bit.ly/cJ26Ow (University of Houston-Victoria)
2. http://bit.ly/dvWCbc (California Department of General Services)
3. http://bit.ly/F0uNY (DWM Beancounter)
4. http://bit.ly/9mV94A (QuickMBA)
5. http://bit.ly/c1haCb (Watch Captain)
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