General Ledger Process Flow
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.
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:
- Step1. Create Journal or Import Journal from Sub‐Ledger
- Step2: Review Journals
- Step3: Approve Journals
- Step4: Journals Posting
- Step5: Run Financial Reports
Step 1: Create Journal or Import Journal from Sub‐Ledger:
Accounting Journals can be created directly in General Ledger. They can also be created in subsidiary ledgers and can then be imported to General Ledger. In the previous lesson, we saw some examples of commonly used subsidiary ledgers. Companies extensively use modules like accounts receivable, accounts payable, inventory, assets, projects, and cash management subsidiary ledgers. Data created in these sub-systems need to be imported to the general ledger for further processing, The accounting lines from sub-ledgers can be imported in summarized form or detailed form.
General Ledger also allows users to directly add transactions in the GL. In that case, you need to follow the accounting principles and the steps explained in the accounting process. At this stage, the journals are entered into the system and available for further processing, but they have not impacted the general ledger account balances yet.
Step 2: Review Journals:
Once the Journal is available in the General Ledger System you can query the journals that have been created. While reviewing the journal, you can make edits/corrections if required.
You might need to make some adjustments to the journals coming from other sources if you want to change the accounts or amounts that are coming from the sub-systems. Review functionality gives the capability to query the journals based on different parameters and also make edits if required.
Step 3: Approve Journals:
Accounting prudence requires that all financial transactions should be reviewed by someone other than the person creating the transaction. Approval ensures the validity and correctness of the transaction. The segregation of the Duties concept requires that the responsibility for related operations should be divided among two or more persons. This decreases the possibility of errors and fraud.
In this step, the system will validate the journal batch, determine if approval is required, and submit the batch to approvers (if required), then notifies appropriate individuals of the approval results. Email notifications can be sent to the approvers using the system and they can review and approve the journals. This step is generally optional and many organizations skip this step by putting additional controls in the process. If this feature is enabled then the journal cannot be posted unless it has been approved.
Step 4: Journals Posting:
An important feature of the general ledger is the "Balance" column, which keeps a running balance for each of the accounts pertaining to which transactions are happening. The transactional data captured through journals in the previous steps is transferred periodically to the columns in the general ledger. Journals posting is a process of updating the database with the amounts.
The volume of transactions carried out by a business will indicate how often to post. A busier company may post daily, while other companies may post weekly or monthly. Periodic postings is required to ensure balances for accounts are current, so the business has the up-to-date financial information it needs to make quick decisions. All transactions must be posted to the ledger at the end of an accounting period. Once the Journals are posted users can query for updated account balances using the account inquiry functions.
Journals Balances Updated: The posting process updates the journal balances. You can inquiry about the account balances in General Ledger for all posted transactions.
Step 5: Run Financial Reports:
One way to determine the financial progress of any organization is to look at the profit gained by a business. Once you have the account balances and transactional data available in the system they need to be formatted to meaningful information that can help users understand the financial history as well as equip them to make informed decisions. To enable these business users to need many types of financial reports.
The next step in the general ledger process is to generate these useful reports and the most common reports run from General Ledger are Transactions Register and Trial Balance Report. ERPs come with a large number of seeded reports as well as with tools to define user-specified reports.
Given above is the generic general ledger process. Some systems may have slight variations to the above process, but the underlying concepts remain more or less the same!
Related Links
You May Also Like
-
In this article we will focus on and understand the accounting process which enables the accounting system to provide the necessary information to business stakeholders. We will deep dive into each of the steps of accounting and will understand how to identify accounting transactions and the process for recording accounting information and transactions.
-
Accrued expenses, sometimes referred to as accrued liabilities, are expenses that have been incurred but have not been recorded in the accounts. Discuss the need to record accrued liabilities and why they require an adjustment entry. Understand the treatment for these entries once the accounting period is closed and learn to differentiate when the commitments become liabilities.
-
Generally Accepted Accounting Principles define the accounting procedures, and understanding them is essential to producing accurate and meaningful records. In this article we emphasize on accounting principles and concepts so that the learner can understand the “why” of accounting which will help you gain an understanding of the full significance of accounting.
-
Multitude of these legal and operational structures clubbed with accounting and reporting needs give rise to many reporting dimensions at which the organization may want to track or report its operational metrics and financial results. This is where business dimensions play a vital role.
-
GL - Unearned / Deferred Revenue
Unearned revenue is a liability to the entity until the revenue is earned. Learn the concept of unearned revenue, also known as deferred revenue. Gain an understanding of business scenarios in which organizations need to park their receipts as unearned. Look at some real-life examples and understand the accounting treatment for unearned revenue. Finally, look at how the concept is treated in the ERPs or automated systems.
-
The general ledger is the central repository of all accounting information in an automated accounting world. Summarized data from various sub-ledgers are posted to GL that eventually helps in the creation of financial reports. Read more to understand the role and benefits of an effective general ledger system in automated accounting systems and ERPs.
-
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.
-
GL - Different Accounting Methods
The accounting method refers to the rules a company follows in reporting revenues and expenses. Understand the two common systems of bookkeeping, single, and double-entry accounting systems. Learners will also understand the two most common accounting methods; cash and accrual methods of accounting and the advantages and disadvantages of using them.
-
This article explains the process of entering and importing general ledger journals in automated accounting systems. Learn about the basic validations that must happen before the accounting data can be imported from any internal or external sub-system to the general ledger. Finally, understand what we mean by importing in detail or in summary.
-
Functional Organizational Structures
A functional organizational structure is a structure that consists of activities such as coordination, supervision and task allocation. The organizational structure determines how the organization performs or operates. The term organizational structure refers to how the people in an organization are grouped and to whom they report.
