Imagine you’re building a house and you record all your finances in a notebook. You have a section for construction material costing, another for plumbing, a third for interior decorations and so on and forth and under all these heads, there is a detailed account of all the material that’s been bought, the discount on them, the taxes levied and the modes of payment opted for. Now, your friend asks you for an estimate that he wants to build his house. You would not hand over your book of statements to him. So, you make a summary of all your statements and hand him that. This summary of statements is called a ledger and its management is called general ledger management.
General Ledgers and Management
Companies oversee the recording and reporting of financial statistics in their accounting books through general ledger management. For a corporation to maintain its financial integrity, various management methods may be in place. Financial accounting, internal and external audits, and the separation of roles are all examples of general ledger management systems.
These rules may be imposed by the company’s owner, executives, or chief financial officer. A company’s financial reporting can suffer if the general ledger is not properly managed. n Standard financial accounting standards are one of the most popular ways for a business to handle its general ledger.
Ledgers, journals, financial accounts, and other accounting instruments are examples of these behaviours. Accountants are in charge of overseeing the data entered into these numerous accounting software programs. Accountants reconcile and check the accounting books for accuracy at specified periods throughout the month, maintaining the general ledger methodically. The final review is carried out by supervisors and others.
Management of the general ledger is a process that evolves through time. Accounting processes will change as a firm grows and evolves. Companies will have to come up with new and more efficient ways to handle day-to-day accounting responsibilities. One of the most typical ways to do this is to hire personnel and create accounting manuals.
Types of General Ledgers
Because it provides a list of all general accounts in the accounting system’s chart of accounts, the general ledger is also known as the accounting ledger. The following are the most common general ledger accounts:
- Asset Accounts (Cash, Accounts Receivable, Fixed Assets)
- Liability Accounts (Accounts Payable, Bonds Payable, Long-Term Debt)
- Stockholders’ Equity Accounts (Common Stock, Retained Earnings)
- Revenue Accounts (Sales, Fees)
- Expense Accounts (Wages Expense, Utility Expense, Depreciation Expense)
- Other Gain and Loss Accounts (Interest Expense, Investment Income, Gain/Loss on Disposal of Asset)
The transactions entered using the double-entry bookkeeping method are summarised in a general ledger. Each transaction in this approach affects at least two accounts; one is debited, while the other is credited. The total debit amount and the total credit amount must always be equal.
The Accounting Equation, which is a mathematical description of the double-entry method of accounting, is Assets = Liabilities + Shareholder’s Equity.
Purpose of General Ledgers
Account Naming and Numbering
Accounts are given names to make it obvious what type of account they are. Cash, Capital, Expenses (sometimes with subtitles), Revenue, Accounts Receivable, Accounts Payable, and so on are examples of common account names.
Making Use of Electronic Ledgers
Electronic ledgers are ledgers that include accounting modules and offer advanced capabilities for managing the ongoing recording and reporting of precise financial transactions. Some include features like integrated project tracking. These electronic systems may generate a variety of reports, including a list of entries, income statements, balance sheets, and ratio analyses, among others. The benefit of these electronic ledgers is that they may be updated at any time.
Getting the Books Ready
It is referred to as “cooking the books” when a corporation adds financial data to produce non-existent earnings. Because book-cooking entails speeding revenues and delaying expenses, as well as executing synthetic transactions to obtain more legitimate financing and improve financial rankings on Wall Street, ledgers are likely to be employed to prevent this type of fraud.
Generally Accepted Accounting Principles (GAAP)
When examining financial accounts for investing reasons, generally accepted accounting rules (GAAP) provide investors with a minimal level of uniformity. . Revenue recognition, balance sheet item classification, and outstanding share measurements are all covered by these principles. However, it is a collection of general guidelines that can be twisted. Accounting noise is caused by distorted accounting standards, which allows some corporations to create a more rosy picture of their financial bottom line than what actually exists.