General Ledger: Tracking Your Business's Financial Health

Every business owner needs a way to track their financial transactions and their cash flow. If they don't, they might end up running into problems. Some business owners choose to keep it super simple and use a simple cash book system. Other businesses prefer to use accounting software and include that as part of their bookkeeping system.

The general ledger (GL) is a record of each transaction within a business. GLs are the most common way to record financial transactions in more complex businesses. GLs are tracked on the general ledger, hence the name. Let's discuss what a general ledger is and how you can use it for your business.

What is a General Ledger?

A general ledger is basically a record of each financial transaction within a company. The transactions are recorded via debits and credits. Debits are recorded on the left side of the ledger, and credits on the right. General ledgers can take a variety of forms. They can be paper-based or electronic. They can be used manually or in accounting software such as QuickBooks.

The main difference between the cash book and GLs is that GLs also include a balance sheet (assets, liabilities, and equity). It's important to understand what's meant by an asset, liability, and equity because GLs include that information as well.

How Does a GL Account Work? 

The general ledger tracks each debit and credit in a company. Debits (left side of the ledger) are recorded in the accounts of the company, and credits (right side of the ledger) are recorded in the accounts of the company. Each account has an account type, namely:

• Asset

• Liability

• Equity

• Revenue

• Expense

Each of these account types has sub-accounts that are tracked in the general ledger. In order to make sense of it all, general ledger account balances should be equal to the other account balances. Basically, the cash account balance should be equal to the amount of cash on hand.

For example, a debit to an Asset account is usually a good thing. A debit to a Liability account is usually a bad thing.

Why Create a General Ledger?

Using a general ledger is a great way to keep track of your business's financial transactions and balance sheets. A GL can help you quickly identify financial trends, perform a number of financial analyses, and spot potential issues early on. Once you've created a general ledger, you need to track your cash flow to make sure your business is staying afloat.

While some businesses still use a cash book or journal to record transactions, most modern companies use accounting software to manage their general ledgers. While a cash book and accounting software may both keep track of financial transactions, you can get a lot more out of your general ledger if you use accounting software to track it.

How Can a General Ledger Help Your Business?

Simply tracking your financial transactions isn't enough. You need to know how your business is doing financially, and that's hard to tell just by knowing your cash flow. You have to know what assets you have, what you owe, and what your equity is. While tracking cash flow is important, so are your assets, liabilities, and equity.

Conclusion

A general ledger is much more complex than a simple cash book, and it can be a bit more confusing. However, it's also more detailed and more thorough. It can help you keep track of all of your business' income and expenses. By knowing what your business is bringing in and what it's spending, you'll be able to make more informed financial decisions.

Having trouble getting your accounts in order? Then you probably need help from accounting experts. Totally Booked is here to help you streamline the financial side of your business while you focus on what you do best. Think of it as bookkeeping for startups. Our QuickBooks Online Certified ProAdvisors will take care of the day-to-day bookkeeping so you can focus on your business. Partner with us today, and we'll make sure you're on track from day one.