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  • September 25, 2022
  • Last Update March 12, 2022 2:43 pm
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5. GENERAL LEDGER

The core of a company’s financial records is maintained as a “general ledger.” These records constitute the central “books” of all financial transactions since day one within the lifetime of the corporate.

In fixing the final ledger, one must be cognizant of two points: (1) linkage to the company’s financial reports and (2) establishment of opening balances.

The two primary financial documents of any company are the balance sheet and therefore the profit and loss statement (income statement), both of which are drawn directly from the company’s book.

The general ledger accrues the balances that frame the road items on these reports, and therefore the changes are reflected within the profit and loss statement.

Every account that’s on a chart of accounts are going to be included in a very general ledger, which should be founded within the same order because the chart of accounts. While the overall ledger doesn’t include every single ledger entry during a given period, it does reflect a summary of all transactions made.

If a business is little and cash-based, a business can founded much of a book of account out of a checkbook. The checkbook includes several pieces of knowledge vital to the overall ledger—cumulative cash balance, date of the entry, amount of the entry, and purpose of the entry.

Even for a cash-based business, a checkbook can not be a sole source for establishing a record.

An important component of any account book is source documents.

Two samples of source documents are copies of invoices to customers and from suppliers. Source documents are critical therein they provide an audit trail just in case you or some other person should return and study financial transactions made in an exceedingly business. as an example, a customer might claim that he never received an invoice from you. A source document will prove otherwise. And source documents are a required component for an accountant at tax time. Other samples of source documents include canceled checks, utility bills, payroll tax records, and loan statements.

All leger entries are double entries. This is sensible because for each financial transaction in an exceedingly business, the cash (or commitment to pay) goes from one place to a different. for example, when a check is written, the money flows out of a payroll account (cash) into the hands of an employee (an expense). When goods are sold on account, a record of the sale (income) is generated; but there must even be a journal entry to create sure that the funds are collected from that account later (an account receivable). As discussed earlier, the system employed in recording entries on a leger is named a system of debits and credits.

As explained in a very previous section, for each debit there should be an equal and offsetting credit. it’s when the debits and credits aren’t equal or don’t offset each other that the books don’t balance. A key advantage of any automated bookkeeping system is that it polices debit and credit entries as they’re made, making it way more difficult for the accounts to not balance.

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