What Is a General Ledger? General Ledger (also known in accounting as the GL or the Nominal Ledger) is at the heart of any accounting system. A general ledger is the master set of accounts that summarize all transactions occurring within an entity. Ledger is the skillful grouping and presentation of the Journal entries. Learn the accounting fundamentals, general ledger process, and general ledger flow.
Accounting is a process designed to capture the economic impact of everyday transactions. Each day, many events and activities occur in an entity, these events and activities are in the normal course of business; however, each of these events may or may not have an economic impact. Events or activities that have an effect on the accounting equation are accounting events. The accounting equation is the basis for all accounting systems. Nowadays most of the accounting is automated using sub-ledger and general ledger systems.
The accounting process enables the accounting system to capture accounting data and provide the necessary information to business stakeholders. Given below are the five steps in the accounting process:
Generally Accepted Accounting Principles define the accounting procedures, and understanding them is essential to producing accurate and meaningful records. Given below are the fundamental accounting principles:
There are two common systems of bookkeeping single entry and double-entry accounting systems. The first – single entry – is simplistic, recording each transaction only once, either as revenue or as an expense. Double-entry bookkeeping has become the standard, and is the preferred way of accounting, as it allows businesses to track both the sources and application of money.
Two types of accounting methods are commonly used to record business transactions know as cash accounting and accrual accounting. Under the cash accounting method, revenue is recognized and recorded when the cash is received and expenses are recognized and recorded when the cash payments are made. Under the accrual method of accounting, revenue and expenses are recognized and recorded, when the product or service is actually sold to customers or received from suppliers, generally before they're paid for.
The following equation shows the relationship among assets, liabilities, and owner’s equity:
Using the rules of debit and credit, transactions are initially entered in a record called a journal. In this way, the journal serves as a record of when transactions occurred and were recorded. The process of recording a transaction in the journal is called journalizing. The entry in the journal is called a journal entry.
Transactions are first recorded in the general journal and then transferred, or posted, to the ledger, which stores all the charts of accounts of a business. An account is defined as an accounting record that reflects the increases and decreases in a single asset, liability, or owner's equity item (The Accounting Equation!!). In addition, the ledger shows the balance of each account that helps the user understand the final effects of the transactions.
While journals present a chronological listing of a company's daily transactions, ledgers are organized by account. As a result, financial statements such as Balance Sheets and Income Statements can only be generated from the general ledger not directly from the journals.
In order for people inside and outside an organization to use financial data, transaction information is organized by the account in ledgers. A general ledger is the main accounting record of a business. Originally a paper document, a ledger is now more likely to be an electronic document containing summarized financial data and balances for all the accounts of an organization.
In automated systems like ERPs, General Ledger is the central repository for all transactions that get recorded in various supplemental books, which are known as modules or sub-ledgers. Examples of supplemental books in traditional accounting are sales books for sales, purchase books for purchases, cash and bank book for cash related transactions and general journals book to capture adjustment entries. In “Automated Accounting Packages” these supplemental transactions are recorded in modules like Accounts Payables, Accounts Receivables, Purchase, or Inventory.
Accounting Cycle is the collective and repetitive process of recording and processing the accounting events of a company in different accounting periods. The series of steps begin when a business transaction occurs and end with the period closure where the cycle is again repeated. The steps in the accounting cycle are:
GL process flow is a five-step process from recording the transactions in the system to finally running the reports containing financial data out of the system. The input for GL Process Flow is the raw accounting data and the output is the accounting reports that can be used to provide various levels of financial information. The steps in the general ledger process flow are:
In the advances general ledger systems, users can drill down to sub-ledgers details from General Ledger and can get all of the transaction details that comprise an account balance, regardless of which sub-ledger originated the transaction. This functionality helps in analyzing any account balance by understanding the source of the transaction and viewing additional information that has been captured in the source system and not imported into the general ledger system.
Five Core General Ledger Accounts
Typically, the accounts of the general ledger are sorted into five categories within a chart of accounts. Double-entry accounting uses five and only five account types to record all the transactions that can possibly be recorded in any accounting system. These five accounts are the basis for any accounting system, whether it is a manual or an automated accounting system. These five categories are assets, liabilities, owner's equity, revenue, and expenses.
In this article, we will explain the general Ledger journal processing flow from entering journals to running the final financial reports. Understand the generic general ledger process flow as it happens in automated ERP systems. The accounting cycle explains the flow of converting raw accounting data to financial information whereas general ledger process flow explains how journals flow in the system.
In this article, we will describe how to determine if an account needs adjustment entries due to the application of the matching concept. Learners will get a thorough understanding of the adjustment process and the nature of the adjustment entries. We will discuss the four types of adjustments resulting from unearned revenue, prepaid expenses, accrued expenses, and accrued revenue.
Funds contributed by owners in any business are different from all other types of funds. Equity is the residual value of the business enterprise that belongs to the owners or shareholders. The funds contributed by outsiders other than owners that are payable to them in the future. Liabilities are generally classified as Short Term (Current) and Long Term Liabilities. Current liabilities are debts payable within one year.
Internally, an organization can be structured in many different ways, depending on their objectives. The internal structure of an organization will determine the modes in which it operates and performs. Organizational structure allows the expressed allocation of responsibilities for different functions and processes to different entities such as the branch, department, workgroup and individual.
GL - Recurring Journal Entries
A “Recurring Journal” is a journal that needs to be repeated and processed periodically. Recurring Entries are business transactions that are repeated regularly, such as fixed rent or insurance to be paid every month. Learn the various methods that can be used to generate recurring journals. See some examples and explore the generic process to create recurring journals in any automated system.
GL - Understanding Chart of Accounts
A chart of accounts (COA) is a list of the accounts used by a business entity to record and categorize financial transactions. COA has transitioned from the legacy accounts, capturing just the natural account, to modern-day multidimensional COA structures capturing all accounting dimensions pertaining to underlying data enabling a granular level of reporting. Learn more about the role of COA in modern accounting systems.
Concept of Representative Office
A representative office is the easiest option for a company planning to start its operations in a foreign country. The company need not incorporate a separate legal entity nor trigger corporate income tax, as long as the activities are limited in nature.
Global Business Services (GBS) Model
Global business services (GBS) is an integrated, scalable, and mature version of the shared services model. Global Business Services Model is a result of shared services maturing and evolving on a global scale. It is represented by the growth and maturity of the Shared services to better service the global corporations they support.
What is Accounting & Book Keeping
Accounting is a process designed to capture the economic impact of everyday transactions. Each day, many events and activities occur in an entity, these events and activities are in the normal course of business; however, each of these events may or may not have an economic impact. Events or activities that have an effect on the accounting equation are accounting events.
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