General ledger definition
A general ledger, or GL, is a means for keeping record of a company’s total financial accounts. Accounts typically recorded in a GL include: assets, liabilities, equity, expenses, and income or revenue. The general ledger definition may include a physical or digital record of such information, potentially embedded in a more sophisticated system of accounting software.
What is GL in the context of accounting? A company’s GL is the basis of its financial reporting and the source of the information used therein. Transactions are noted from a source document, such as an invoice or bill, and tracked in the general journal. Periodically, all transactions made within a company are posted to the general ledger. Since the GL is comprised of a company’s total financial accounts, it is instrumental in the preparation of key financial reporting documents such as the balance sheet and income statement.
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What is a general ledger process?
- Making a general ledger begins with creating a journal or log with the details of every business transaction, as each transaction occurs.
- Then categorize each transaction under a relevant account, such as sales, cash, or accounts payable.
- At regular intervals, reconcile the information inside these accounts.
- Once complete, transfer your journal entries to the GL.
What is a GL reconciliation process?
The reconciliation process is a matter of double-checking important accounts. Reconciliation involves checking each account within a general ledger to verify accuracy. The process begins by gathering the information for each account in review, then examining any journal entries which have been made to correct errors in the ledger.
With journal corrections in mind, balances in the general leger are compared against financial data, such as bank statements. If discrepancies are found, reconciliation requires investigating for unusual transactions, or otherwise explaining the error.
What is a GL code?
General ledger codes are numerical names you assign to an account. For example, the GL code for an accounts receivable might be account #105. Electric bills might be #203. This coding system can be used to group related accounts. For example, all utility accounts might start with #2. GL codes aren’t substitutes for descriptive account names, but they’re a useful tool for rapid data entry and effective organization.
More articles to help you understand small business finance:
- How to boss your cash flow: 5 things to do right now
- Understanding your small business finances: Where to start
- 5 KPIs to measure small business growth
- Checklist: How to prepare a profit and loss (P&L) statement