Ledger

Facts

General ledgers maintain a company’s financial information using debits and credits. Double-entry accounting systems require all general ledger debits to equal all general ledger credits. This method establishes a self-balancing general ledger. Business owners who discover incorrect financial information may need to reconcile their general ledger accounts. Reconciliations balance the general ledger before creating financial reports. Financial statements represent a company’s aggregate general ledger financial information.

Financial Accounts

General ledgers contain multiple financial accounts, which usually are grouped by type. Common types of financial accounts include assets, liabilities, cost of goods sold, expenses, owner’s equity and other miscellaneous accounts. Small business owners can design their general ledger according to business operations. The amount of financial information may also dictate how many financial account groups the company will use in its general ledger.

Journals

General ledgers also contain several types of financial journals, which include financial accounts and transactions related to specific accounting functions. Accounts payable, accounts receivable, payroll, sales, disbursements and general accounting are just a few special journals in the company’s general ledger. Special journals separate financial information for easy review by business owners. Business owners can also reconcile financial transactions according to each journal in the accounting ledger.

Journal Entries

Journal entries represent individual financial transactions in a company’s general ledger. Business owners often need to manually enter journal entries into their company’s general ledger. Business owners must often post adjusting journal entries at the end of each accounting period. Adjusting journal entries are posted at the end of an accounting period to complete financial accounts and prepare creating financial statements. Many types of small businesses use adjusting journal entries to close their general ledger.

Expert Insight

Business owners can use a public accounting firm or individual certified public accountant to maintain their accounting information. Professional accountants offer specific advice for setting up general ledger procedures. Business owners also use professional accountants to prepare the company’s financial information for business tax purposes. Small businesses formed as a sole proprietorship, partnership or S corporation may also use professional accountants to prepare individual tax returns as business income is taxed at the owner’s personal income tax rate.