What is a general ledger account?

If you’re a business owner, chances are you’ve heard of the term “GL account.” But what is it exactly? GL stands for General Ledger and this account is essentially a system of accounting that helps businesses track financial transactions. It’s an extremely valuable tool for any business, as it allows them to keep track of their finances in a simple and organized way. In this blog post, we’ll discuss what a GL Account is, how it works, and why it’s important for businesses to understand.

• Also, the accounting professional auditing your company accounts may ask for sales receipts, purchase invoices, etc.
• General Ledger (GL) accounts contain all debit and credit transactions affecting them.
• It provides bookkeepers with the information they need to generate any reports.
• Furthermore, a General Ledger helps you to know the overall profitability and financial health of your business entity.
• Speaking of record keeping of transactions, we will take a slight detour here to look at GL codes.
• With the right tools, GL Accounts can be easy to set up, maintain, and review when needed.

“As transactions in your business occur, they are noted in the general ledger under each account using double-entry accounting. It’s essential to have an accurate accounting of all transactions so that financial statements are correct. This is often the role of a bookkeeper or other accounting staff,” said Cross. “General ledgers are maintained to make a balance sheet, file taxes and most importantly, view all your information in one place,” said Salman Rundhawa, founder and CEO of FilingTaxes.

Additionally, GL accounts can help managers gain insights into spending patterns and make more informed decisions about where to allocate resources. Finally, using GL accounts can help to ensure compliance with accounting standards and regulations. There are many different types of GL account, and each one has its own specific purpose. For example, there are accounts for tracking inventory, accounts receivable, accounts payable, and so on. Knowing which type of account to use for each transaction is an important part of bookkeeping. In simple words, the general ledger is a cornerstone of accounting and financial reporting.

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Overall, GL account types are essential tools for tracking business performance and making strategic decisions about how to grow and improve the company over time. In general, a nominal ledger account acts as a more specialized type of record-keeping within the larger system of the business’s general ledger accounts. turbotax self General Ledger Codes are nothing but the numeric codes that you assign to different General Ledger Accounts. These accounts help you in organizing the General Ledger Accounts properly and recording transactions quickly. So, the operating income includes sales revenue, income received as fees and commission, etc.

While you can definitely track income and expenses with FreshBooks Lite, you can’t break down transactions by account and you won’t have a general ledger to reconcile. General ledger reconciliation is the process of making sure your GL is accurate. You (or your accountant) will check the transactions recorded in your general ledger against primary documents like receipts, tax documents, invoices and other records. You’ll make sure every transaction is accurate and has been correctly recorded as both a credit and debit in the appropriate accounts. General ledgers are made up of (and organized by) accounts, or subsections that categorize financial transactions by type. The accounts in turn may include sub-accounts or sub-ledgers, which record more precise details about each transaction.

All you have to do is enter your expenses and track revenue, and your accounting software will automatically categorize everything else in the general ledger. The general ledger, or GL, is the central bank of information for organizations. It is an accounting system that stores financial transactions, like revenue, assets, expenses, and liabilities. The income statement might include totals from general ledger accounts for cash, inventory and accounts receivable, which is money owed to the business. They are sometimes broken down into departments such as sales and service, and related expenses.

• Make it a habit to post journal entries to reflect all financial transactions regularly, including but not limited to revenue, expenses, and asset/liability adjustment.
• GL accounts are important for providing an accurate picture of a company’s financial health.
• This stores everything between depreciation, disposals, and asset management.
• Depending on the software and plan, you can also add custom accounts unique to your specific business.

Further, the shareholder’s equity includes share capital, retained earnings, and treasury stock. Thus, the shareholder’s equity appears on the liability side of your company’s balance sheet after current and non-current liabilities. Furthermore, the assets are categorized into current assets and fixed assets. These are typically reported on the left-hand side of your company’s balance sheet. This is because the details recorded in your ledger accounts provide sufficient details to file your tax returns. This is because General Ledger Accounts records transactions under various account heads.

Reasons Businesses Need a General Ledger

General Ledger Accounts are the basis on which you prepare Trial Balance. From Trial Balance, you are able to prepare statements of final accounts. Such financial statements help you in knowing the profitability and overall financial position of your business. In the past, the general ledger was literally a ledger—a large book where financial data was recorded by hand. Of course, it’s still possible to do your bookkeeping with a paper ledger.

Should You Worry About Subsidiary Ledgers?

Broadly, the general ledger contains accounts that correspond to the income statement and balance sheet for which they are destined. Certified public accountants (CPAs) and bookkeepers typically are the ones accessing and using general ledgers. Following the accounting equation, any debit added to a GL account will have a corresponding and equal credit entry in another account, and vice versa. A general ledger account, or GL account, is one of the basic elements of financial accounting. It indicates specific groups of financial activity, including assets, liabilities, and revenue/expenses.

Classification of General Ledgers

It contains all the information you need to generate crucial accounting reports, including your balance sheet, income statement and cash flow statement. General Ledger Accounts (GLs) are account numbers used to categorize types of financial transactions. A “chart of accounts” is a complete listing of every account in an accounting system.

What are the benefits of using GL accounts?

Fortunately, you don’t need to gain a deep understanding of how the general ledger works to keep their books and understand their financial performance. You can prepare financial statements once you have verified the accuracy of your ledger accounts. Additionally, not all plans offered by the same accounting company include general ledgers. For instance, unlike FreshBooks’ higher-tier plans, its cheapest plan (FreshBooks Lite) doesn’t include double-entry accounting.

Just know that when your bookkeeper prepares financial statements for you, they’re pulling from the general ledger. No matter which accounting method you use for your business, keep this equation top of mind. It tells you everything you need to know about what healthy books look like. When you set up your general ledger, you must decide whether you’ll use the double-entry method or the single-entry method.

But since bookkeeping by hand takes 1,000 times longer, most business owners and bookkeepers use accounting software to build their general ledgers. You’d enter balance sheet accounts like your assets, equities, and liabilities, followed by income statement accounts like revenues and expenses. Traditional accounting software allows you to connect your GL accounts to your bank accounts to keep up with account balances and financial transactions to simplify accounting processes. General ledger refers to the primary accounting record that is maintained by a company, which is based on the double entry bookkeeping system.