What is general ledger (GL)?
The general ledger definition includes a comprehensive record of a company’s financial transactions. It summarizes the assets, liabilities, equity, revenue and expenses of the organization in one place, and forms the foundation of its financial reporting.
How does general ledger work in accounting?
GL in accounting records transactions from multiple documents such as invoices, receipts, etc. and organizes them by account type. All transactions are first entered in a journal before being posted to the general ledger account.
The purpose or the general ledger is to consolidate all financial data and enable deep visibility into the finances of the business. It also generates the company’s important financial reports such as the balance sheet and income statement.
What are the types of general ledger accounts?
- Assets — cash, inventory, accounts receivable
- Liabilities — loans, accounts payable
- Equity — retained earnings, capital contributions
- Revenue — income from sales, fees from services
- Expenses — rent, salaries, travel utilities, etc.
What is the general ledger process?
The general ledger system consists of a structured general ledger format to record financial transactions and organize them into accounts. The steps in the process include:
- Recording each financial transaction, when it occurs, in a journal
- Categorizing every transaction into the appropriate account (cash, sales, accounts payable, etc.)
- Posting transactions from the journal to the GL through the right general ledger entries to ensure up-to-date financial records
- Summarizing account balances so that the GL ledger shows the consolidated financial activity, which becomes the basis for financial reports
What is general ledger reconciliation?
GL reconciliation ensures that the recorded transactions are accurate through a comparison of the GL’s account balances with external financial records. Any discrepancy is investigated, and adjustments are posted to correct the errors. In doing so, records of the reconciliation process are accurately maintained to comply with audits and accounting regulations.
What is the difference between a general ledger and a subledger?
The general ledger meaning comprises a set of accounts that include all debit and credit entries for a particular period.
A subledger (also known as a subsidiary ledger) is a subset of the general ledger and provides the detailed report of accounts and related transactions.
Why is the general ledger important?
The value of the general ledger lies in the support it provides to organizations in terms of decision-making, accountability, and operational performance. The GL ensures accuracy and transparency of financial reports, compliance to standards and regulations — and supports business analysis for accurate forecasting.
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