Yet another ancient-sounding accounting term, the general ledger (GL) can come off sounding a bit dull. Worse yet, you might even picture an image of a large, dusty book filled with numbers you don’t understand. After all, the definition of a ledger is
“a book or other collection of financial accounts of a particular type.”
But fear not. In this article, we’ll be breaking down important information to help you understand what a GL is and why it’s important to your small business finances. We will also be covering information such as:
- What it’s used for
- Why you need it
- How you can pull one up from Kashoo
Having a better understanding of your general ledger will allow you to use it as a tool within your business to make smarter, sounder, financial decisions.
So let’s start with the basics.
What is General Ledger?
In accounting terms, the GL serves as the foundation of a company’s accounting system. Financially-minded individuals and businesses use this document to meticulously track all of its accounts and transactions throughout its company’s lifetime.
Accountingtools.com describes a general ledger as
“the master set of accounts that summarize all transactions occurring within an entity”.
It is essentially used to aggregate the financial data of a business to prepare financial statements and reports for tax time and beyond. With Kashoo, this is automatically done within the software.
The five main categories/accounts that make up the ledger are:
- Assets: any resources that are owned by the business and produce value
- Liabilities: current or future financial debts the business has to pay
- Equity: the difference between the value of the assets and the liabilities of the business
- Revenue: income derived from the sales of business products and/or services
- Expenses: money paid by the business in exchange for a product or service
A chart of accounts lists all of the accounts in the general ledger, which can number in the thousands for a large business.
Keep in mind, general ledger accounts are not budget accounts. They show actual amounts spent or received and not merely projected in a budget.
The Importance Of Double Entry Bookkeeping
You’ve probably seen us write about double-entry bookkeeping before, and why it’s a better method of record-keeping for your small business.
Double-entry bookkeeping allows you to be sure that the general ledger is always balanced. Financial transactions that are entered are debited from one account and credited from another in an equal amount. This also helps to ensure that you never over-estimate your business financially.
It also makes sure that the accounting equation stays in perfect equilibrium: Assets = Liabilities + Equity
Similar to a personal checkbook, the credit and debit amounts of the ledger must always be in balance. It contains account information about a company throughout its entire lifetime and is mandatory for preparing financial statements and reports like the balance sheet and the income statement.
What Is a General Ledger Used For?
A general ledger has a big responsibility. After all, it holds all of the necessary account information in order to prepare your company’s financial statements.
Previously we’ve discussed accounts payable and accounts receivable, among other accounting terms. However, these accounting items play only a small part in understanding a company’s full financial picture.
The general ledger takes monthly summaries of these journals to create one “big picture”.
Why Does General Ledger Matter To My Small Business?
A large part of growing a successful, sustainable business means that you are in-tune with the financial well-being of your business.
It doesn’t mean you need to be a finance expert or an accounting pro.
However, what it does mean is that you need to understand basic accounting terms, financial reports, and statements, and obviously enough, the general ledger. Understanding these basics not only enables you to make smarter business decisions, but you’re in a better position when you know exactly where your company sits in relation to potential investments and financial setbacks.
Here are 5 super important reasons why your small business needs a general ledger:
- It provides an accurate record of all financial transactions
- It makes filing taxes much easier as you have all of your income and expenses in one place
- It helps you spot unusual transactions easily
- It helps compile key financial statements that are critical for evaluating the financial standing of your business
- It helps you identify (and stop) fraud
How to pull a General Ledger Report from Kashoo
With Kashoo, you can pull up a general ledger in one easy click. As you track your income, expenses, and all the nitty-gritty details of your business transactions, Kashoo is tracking, storing, and organizing the data for you in the background.
Whether you’re on the Kashoo mobile app or a web app, all your financial data can easily be pulled into the general ledger. From Kashoo’s Dashboard, all you have to do is to export it and voila: you’re ready to go.
Understanding what a general ledger is, what it’s used for, and most importantly, why it matters to your small business are important and necessary to grow your business. See for yourself how easily you can access your General Ledger using Kashoo’s free 14-day free trial!