What is a general ledger, and why is it so darn important?

//What is a general ledger, and why is it so darn important?

What is a general ledger, and why is it so darn important?

By |2019-12-18T08:02:40+00:00December 12th, 2019|Blog|0 Comments

Cash flow statements. Balance sheets. Profit/loss reports. Each of these are crucial pieces of paperwork when it comes to your bookkeeping and accounting.

Moreover, none of them would be possible without a general ledger.

The general ledgers forms the heart of any bookkeeping or accounting system. Make a mistake here, and it could throw the rest of your small business bookkeeping completely off!

But what exactly is a general ledger, anyway? And why is it so darn important in the first place?

Curious? Read on as our small business bookkeepers in Melbourne explain the role of the general ledger in your bookkeeping!

General ledger bookkeeping

Our small business bookkeepers explains general ledgers

In a nutshell, the general ledger is a record of every single transaction associated with your business over a period.

Every purchase, sale, credit received, loss, paycheck, BAS payment… all of these are recorded in the general ledger first.

A general ledger entry typically looks a little bit like this:

DateDescriptionAccountDebitCredit
15/11Provided services worth $500, 50/50 cash and creditCash250
Credit receivable250
Revenue500

Each type of transaction and account must be entered differently – for example, increases in assets (such as cash, inventory and money owed to you) are recorded as debits, and vice versa.

Furthermore, the debit and credit columns MUST be equal.

It’s a lot of info to take in at once – however, it’s also crucial to the rest of the accounting and bookkeeping process.

Luckily, bookkeeping software largely automates this procedure – there’s no need to spend hours going over different entries with a pocket calculator.

Why the general ledger is so important

While there’s no law saying that you need to use a general ledger, it can certainly make your bookkeeping and accounting considerably easier!

A general ledger provides a master list of all transactions your business performs throughout a period. Instead of having to flip through an entire filing cabinet full of different ledgers and reports, you can simply go to the one and find the entry you’re looking for.

What’s more, it also makes the task of reconciling mistakes much quicker too.

If you’ve made a mistake with your small business bookkeeping, your first instinct is to go back and try correcting it.

Unfortunately, in many cases, deciding where to start can take even more time than fixing the mistake.

The general ledger makes finding and correcting mistakes considerably easier, since both debit and credit entries for each transaction MUST be equal.

Any entries where this isn’t the case can be easily identified. Instead of having to flip through all the various reports and ledgers your business generates, you can go through a single list that’s easier to manage.

What’s more, if you use Excel or dedicated bookkeeping software, any changes to the general ledger can be automatically updated to reflect the corrections.

The general ledger in cloud bookkeeping platforms

In the old days, once information was entered in the general ledger, it would have to be transferred over to individual ledgers by hand.

Thankfully, that’s no longer the case.

Cloud bookkeeping software like Xero, MYOB and QuickBooks essentially automate this process for you. Enter anything into the general ledger, and that information will automatically be collated and entered into the appropriate individual ledger, report or statement.

Not to mention, many of the entries will be automated anyway, as cloud bookkeeping platforms can be synced with your existing systems, accounts and databases.

For example, cloud bookkeeping platforms can be synced with your POS system and bank accounts. Thus, instead of having to manually enter individual sales and revenues into the general ledger, the information will be automatically updated.

Call our small business bookkeepers in Melbourne for cloud bookkeeping solutions

If you’re looking for ways to make your bookkeeping easier, a general ledger can help.

However, that isn’t the only thing you can do – you can also make your bookkeeping even easier by taking it to the cloud!

Pen-and-paper bookkeeping is old-hat – compared to cloud systems, it’s:

  • Slow and time-consuming
  • More work for you
  • Less accurate

Small business owners are busy people. And let’s face it, you have much better things you could be doing. You could be planning your business’ future, or simply spending time at home with your family!

Cloud bookkeeping software is all about making your bookkeeping as fast and simple as possible.

Our team can set you up with time-saving cloud bookkeeping solutions that can dramatically reduce the amount of time spent looking after your bookkeeping. We’ll set it up, train you and migrate your records over to your new cloud bookkeeping system.

FInd out how we can make your bookkeeping more efficient today – call our small business bookkeepers in Melbourne today!

We can be contacted on (03) 9589 0128, or click here to get in touch online.