What is general ledger (GL)? -- Definition from WhatIs.com

General ledgers are typically used and accessed by accountants. Following the accounting equation, any debit added to one of the general ledger accounts ... Home ERPaccounting MarketingandCX generalledger(GL) Sharethisitemwithyournetwork: By WesleyChai, TechnicalWriter DavidEssex, EditoratLarge LauraAberle, TechTarget Ageneralledger(GL)isasetofnumberedaccountsabusinessusestokeeptrackofitsfinancialtransactionsandtoprepare financialreports.Eachaccountisauniquerecordsummarizingeachtypeof asset, liability,equity,revenueandexpense.A chartofaccounts listsalloftheaccountsinthegeneralledger,whichcannumberinthethousandsforalargebusiness. Generalledgersaretypicallyusedandaccessedbyaccountants.Followingtheaccountingequation,anydebitaddedtooneofthegeneralledgeraccountswillhaveacorresponding,equalcreditinanotheraccount,andviceversa.Usingageneralledgercanhelpcompaniesmonitorfinances,tracktransactions,compileandmaintaininformationforimportantbusiness-relatedreports,andhelppreventaccountingerrorsandfraud. Whycompaniesshouldusegeneralledgers Ageneralledgercanprovidevaluetobusinessesinafewdifferentways.Oneimportantfunctionofageneralledgeristhatitcanhelpgenerateanumberofimportantfinancialstatementsforvariousbusinessstakeholderstobasedecisionsoffof.Asageneralledgerprovidesimportantaccountingrecordsforallofabusiness'sfinancialtransactions,thiscanhelpaccountantsspotanyerroneous,fraudulentorunusualtransactions. Furthermore,ageneralledgerhelpscompileatrialbalanceandhelpbusinessesproactivelystayontopofexpenses.Acompanymayopttostoretheirgeneralledgerusingblockchaintechnology,whichcanpreventfraudulentaccountingtransactionsandpreservetheledger'sdataintegrity. Howdoesageneralledgerwork? Thegeneralledgeressentiallyfunctionsasacollectivesummaryoftransactionspostedtosubsidiaryledgeraccountssuchascash,accountspayable,accountsreceivableandinventory.Generalledgersworkusingadouble-entryaccountingmethod--meaningthatexpensesandincomeitemsareshownasdebits,credits,anddollaramounts.Eachgeneralledgeritemorentrycanbedividedupintofourmainparts--ajournalentrydescribingtheitemnumberofthetransactionpostedtotheaccount,adescriptionforthespecifictransaction,adebitorcreditvalueforthenetbalancechangeandaresultingbalanceafterthecreditordebitisposted. Duringthebookkeepingprocess,otherrecordsoutsidethegeneralledger,calledjournalsordaybooks,areusedforthedailyrecordingoftransactions.Thesetransactionscanincludecashpaymentstowardan invoiceandtheirtotals,whicharepostedincorrespondingaccountsinthegeneralledger.Inaccountingsoftware,thetransactionswillinsteadtypicallyberecordedinsubledgersormodules.  Thetotalscalculatedinthegeneralledgerarethenenteredinotherkeyfinancialreports,notablythebalancesheet--sometimescalledthestatementoffinancialposition.Thebalancesheetrecordsassetsandliabilities,aswellastheincomestatement,whichshowsrevenuesandexpenses. Incomestatementsareconsideredtemporaryaccountsandareclosedattheendoftheaccountingyear.Theirnetbalances,positiveornegative,areaddedtotheequityportionofthebalancesheet--forexample,owners'orshareholders'equityinaprivatecompany,orretainedearningsina nonprofitorganizationandfiguresthatarederivedbysubtractingliabilitiesfromassets.Incontrast,theaccountsthatfeedintothebalancesheetarepermanentaccountsusedtotracktheongoingfinancialhealthofthebusiness. Generalledgeraccountsarenotbudgetaccounts.Instead,theyshowactualamountsspentorreceivedandnotmerelyprojectedinabudget. Typesofgeneralledgeraccounts Broadly,thegeneralledgercontainsaccountsthatcorrespondtotheincomestatementandbalancesheetforwhichtheyaredestined. Theincomepartoftheincomestatementmightincludetotalsfromgeneralledgeraccountsforcash,inventoryand accountsreceivable --moneyowedtothebusiness.Theyaresometimesbrokendownintodepartmentssuchassalesandserviceandrelatedexpenses.TheexpensesideoftheincomestatementmightbebasedonGLaccountsforinterestexpensesandadvertisingexpenses. OtherGLaccountssummarizetransactionsforassetcategories,suchasplantandequipment,andliabilities,suchas accountspayable,notesorloans. OthertypesofGLaccounts Whiletheaboveaccountsappearineverygeneralledger,otheraccountsmaybeusedtotrackspecialcategories,performusefulcalculationsorsummarizegroupsofaccounts.Thelattertypeiscalledacontrolaccount. Forexample,anaccountantmightuseaT-account--namedsobecauseofitsTshape--totrackjustthedebitsandcreditsinaparticulargeneralledgeraccount. Generalledgersanddouble-entrybookkeeping Followingtherulesofdouble-entrybookkeeping,eachentryinthegeneralledgermustappearintwoplaces:onceasadebitandonceasacorrespondingcredit.Andthetwoaddedtogethermustequalzero. Theterms debit and credit donothavetheircommonplacemeanings,andwhethereachaddstoorsubtractsfromanaccount'stotaldependsonthetypeofaccount.Forexample,debitinganincomeaccountcausesittoincrease,whilethesameactiononanexpenseaccountresultsinadecrease. AscreeninthegeneralledgermoduleofSAP'sS/4HANAERPsuiteletsyouviewadirectoryofthejournalentriesthatfeeddataintoaGLaccount. Generalledgerreconciliation Attheendofeachaccountingperiod,atrialbalanceiscalculatedbylistingallofthedebitandcreditaccountsandtheirtotals,andseparatingthosewithdebitbalancesfromtheoneswithcreditbalances.Thedebitandcreditaccountsarethentotaledtoverifythatthetwoareequal.Iftheyaren't,theaccountantcanlookforerrorsintheaccountsandjournals. However,thetrialbalancecannotserveasproofthattheotherrecordsarefreeoferrors.Forexample,ifjournalentriesforadebitanditscorrespondingcreditwereneverrecorded,thetotalsinthetrialbalancewouldstillmatch. Companiesuseageneralledgerreconciliationprocesstofindandcorrectsucherrorsintheaccountingrecords. Generalledgeraccountingsoftware Forcenturies,generalledgerswerekeptonpaper,butinrecentdecadestheyhavetypicallybeenautomatedin enterpriseaccountingsoftware andin ERP,whichintegratescoreaccountingfunctionswithmodulesformanagingrelatedbusinessprocesses.Processescouldincludeordermanagement and humanresourcemanagement.GLsarealsoacomponentin enterpriseassetmanagement software. Insuchsystems,theGLservesasacentralrepositoryfortheaccountingdata. Generalledgertransactionexample Hereisanexampleofanaccountingtransactionwithinageneralledgerforafictionalaccount,ABCDEFGHSoftware.NotethatthisspecificexamplereferstoABCDEFGHSoftware'scashaccount. AgeneralledgertransactionforfictionalcompanyABCDEFGHSoftware Ontheleftmostcategory,notethedateofthetransaction.Toitsright,therewillbeajournalentryassociatedwiththetransaction,whichcontainsanidentifyingnumberassociatedwiththetransaction.Thedescriptionofthetransactionisinthecolumndirectlytotherightofthejournalentry,andstatesthereasonbehindthetransactionforreference.Inthisscenario,thetransactionisforacashpaymentfromaclientaccounttoABCDEFGHSoftware.Sincethecashaccountisreceivingincome,thenthedebitcolumnwillshowanincreaseanddisplayasumfortheamount.Inthiscase,itis$10,000. Forthistransaction,thecreditcolumnwillremainunchangedforthisspecificaccount;however,aseparateledgerforthecompany'saccountsreceivablewillreflectacreditreductionforthesameamount,sinceABCDEFGHSoftwarenolongerhasthatamountreceivablefromtheirclient.Thus,maintainingtheaccountingequation'snet-zerodifference,oneassetaccountwillincreasewhileanotherreceivesanequaldecrease.Thenewbalanceforthecashaccount,afterthenetchangefromthetransaction,willthenbereflectedinthebalancecategory. ThiswaslastupdatedinJanuary2021 ContinueReadingAboutgeneralledger(GL) Blockchain-basedaccounting:Generalledgerposting UnderstandassetaccountinginanERPgeneralledger LearnmoreaboutGLsoftware Merginggeneralledgersoftwarerequirescaution Generalledgerbasicsandsoftwareoptions RelatedTerms ERPfinancemodule TheERPfinancemoduleisthesoftwarecomponentthathandlesthemainaccountingandfinancialmanagementfunctionsofan... 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