General Ledger Explained – Definition
A company keeps a detailed record of its financial transactions in a specific format. This format is called General Ledger in the language of accounting. It consists of all types of accounting data a company may have, including assets, capital, liabilities, expenses and income. General ledger acts as a central depository for accounting information collected from sub-ledgers, for example, stock, cash in hand, accounts receivable A/R, customer deposits, accounts payable A/P, etc.
A Little More on What is the General Ledger
The general ledger is basically the set of these accounts with debit and credit history that are validated by a trial balance to prevent mathematical errors. The Trial Balance is the bookkeeping worksheet with balances from all the accounts prepared periodically. Transactions are posted to the general ledger accounts, and the trial balance is generated. A summary is also created which is basically a report listing all the accounts and each account’s balance. This listing of account names is called the chart of accounts.
Components of General Ledger
A general ledger employs double-entry bookkeeping method. This means that each financial transaction affects at least two general ledger accounts. It also means that each entry has a debit and credit transaction.
For example, for a $100 invoice and payment from a client, cash account will increase by $100 while the receivable account is reduced by the $100. Thus, the accounts are balanced. Double-entry transactions are posted in two columns, with debit entries on the left and credit entries on the right, and the total of all debit and credit postings are balanced. There are additional columns to the right which hold a running activity total.
The general ledger also includes the date, description, balance or total amount for each account as well.
The general ledger accounts are usually divided into seven main categories including assets, equity, revenue, liabilities, gains and losses. They may be subdivided into sub-ledgers for more details such as cash accounts, accounts receivable, accounts payable etc.
The accounting equation:
Assets = Liabilities + (Shareholder’s or Owners’ equity)
is balanced using the double-entry bookkeeping system because with each entry, it debits from one account and credits into another account with equal amount. Although, principally, the general ledger appears to be simple and straightforward and looks easy to maintain, in large and complex organizations, the general ledger can be quite large and vast and can take a lot of time to balance and audit.
Reference for the General Ledger
Academic Research on General Ledger
XBRL for general ledger, the journal taxonomy, Hannon, N. (2003). Strategic Finance, 85(2), 63. This research explains the role of XBRL-GL and focuses on why organizations and governments are moving to a general ledger. XBRL-GL facilitates with easy methods of transferable information that is easy to record in general ledger.
XBRL GL: the general ledger gets its groove, Hannon, N. J. (2005). Strategic Finance, 87(3), 57. “Accounting Today” brings into publication top one hundred technological products every year for accounting. The list of products is very helpful for businesses, but there are a lot of options available. So, the accounts market becomes robust, faulty and diverse. Despite modern accounting was there, companies were used to record transactions on paper with the pen. It was the 14th century when the Italian traders developed the bookkeeping system of double entry. It led to the present mechanism of General Ledgers in accounts. Now, accounting has become easier and fast.
Uses and purpose of a municipal general ledger, Cleveland, F. A. (1910). Journal of Accountancy (pre-1986), 10(000006), 401. The paper discusses the purpose and use of MGL (Municipal General Ledger) to make a single record that contains every type of information.
The Basis for Internet Financial Reporting: XBRL for General Ledger [J], Yan, P. A. N., & Lin, L. I. N. (2006). Collected Essays on Finance and Economics, 1, 011. This paper tells us what is the base of IFR (Internet Financial Reporting). It guides how online input and output format (General Ledger) can be used to complete accounting procedures.
· Student use of general ledger software: Performance, effort, and attitudinal differences, Folk, M. J. (1998). The Review of Accounting Information Systems, 2(4), 31-44. The author elaborates the use of software that has been designed to help the students in making general ledgers. This is to reduce efforts, increase performance and to highlight any attitudinal differences in accounting sequences.
· General ledger software with practice sets in financial accounting principles courses, Kundey, G. E. (1991). Journal of Education for Business, 66(6), 346-349. The research has been carried out to focus on the role of GL software that contains practice sets. It assists in managing financial information and thus preparing reports of financial accounting. The author states how students can be taught in institutions to use this software.
· Six Rules for Implementation of the General Ledger in SAP ERP, Gordon, M., & Dyer, J. N. (2014). International Journal of Business Research, 14(1), 7. This paper shows various examples behind the failed implementations of organizational resource planning mechanism. There are a number of reasons for that. With an accounting standpoint, General Ledger’s lack of knowledge and information concerning the successful implementations of accounts modules is a significant reason behind this failure. Thus certain complications arise that include failing of ERP implementation and weak financial reporting. The research signifies six principles that a General Ledger needs to consider to implement SAP. The paper is helpful for all accounts professionals as it explains General Ledger implementation.
· Business process instance extraction from general ledger data, van Schijndel, J. J. M. (2013). The paper is about using data mining techniques related to the business process. It explains how instances can be extracted from the information of general ledger.
· Placing tax attributes in a partnership or LLC’s general ledger, , Balla, D. P. (2001). The CPA Journal, 71(6), 64. The research discusses the role of LLC (Limited Liability Company) and how it uses general ledgers to maintain the record of its taxation. The paper shows how to grasp the built-in-gains with respect to tax attributes and keeping records in case of partnerships.
· Automating general ledger provides key operating data for department managers., Kruse, D. W. (1976). Hospital financial management, 30(3), 51-53. This paper throws light on the availability of data concerning significant operations to organizational managers. The availability of this data is due to automating general ledger process.
· The Corporation’s General Ledger and journal entries Hopper, L. J. (1928). Corp. Prac. Rev., 1, 26. This research states that how an accounts officer accesses and maintains the information available in general ledger. The register contains all the information concerning debit and credit and resembles a voucher register.
· Encourage General Ledger Efficiency, Bragg, S. (2004). Journal of Accountancy, 198(3), 22. The study addresses the functions of general ledger, records of accounts and the placement of information at easily available locations for efficient closing. This helps to decrease the burden of audit work.