General ledger: guide to this accounting record and its importance

What is the general ledger in accounting?

The general ledger is one of the most important accounting records that a  company must have . It is where each of the economic transactions carried out during a fiscal year are recorded and organized by account.

Unlike other annual accounts in Spain, this book is not mandatory, meaning it does not have to be submitted to the Treasury. However, it is a fundamental piece of information for studying and evaluating the financial health and accounting of a company.

Function of the general ledger in accounting

The  General Accounting Plan establishes the rules that companies must follow to keep their accounting records, also specifying how the general ledger is managed and its functions.

In this sense, the importance of this registry should not be underestimated, as it allows you to:

• Organize all company transactions in their corresponding accounts to have detailed control of activities.
• By having the operations recorded in a single book, it serves as the basis for completing other financial statements such as the  balance sheet ,  profit and loss statement , etc.
• Conduct an analysis of your company’s financial situation in order to improve future decision-making.
• Since all transactions carried out are included, it is easier to detect errors in the accounting records, thus avoiding possible penalties.
• Finally, the structure and level of detail of the general ledger makes it easier to reconcile accounts with external financial statements.

Ledger structure

Before learning how to make a general ledger, it is important that you recognize the following concepts:

• Assets : These are all the assets and rights that your company owns and that will generate economic benefits for you in the future. Some examples of assets are land, cash, accounts receivable, and patents, among others.
• Liabilities : A liability is an obligation owed to a third party that must be paid soon. These debts are represented in the form of accounts payable, taxes, and loans.
• Equity : is the difference between assets and liabilities, that is, it is the residual value that corresponds to the owners of the company.
• Income : increases in net worth generated by economic activity and which help you increase your assets or decrease your liabilities.
• Expenses : This is a decrease in assets generated by  new zealand email list the company’s own ordinary activity, such as when raw materials are purchased.

Typical Ledger Columns

The accounting ledger is organized in the form of a table with several understanding kpIs in email marketing columns where accounting entries are entered. These are some of the most notable columns:

• Date : indicates exactly when the operations were carried out;
• Description : This is a brief summary of the transaction so that you can identify it more easily;
• Debit / Credit : Monetary values ​​are recorded in these columns. Each transaction affects at least two accounting accounts of a company. In one it is recorded as a debit and in the other as a credit;
• Balance : Lastly, the balance is the difference between the total  whatsapp number  debits and the total credits of an account.

All this can be better understood with an example. Imagine that you purchase computers for your office at a cost of €1000. In the general ledger we record the purchase in the “Office Equipment” account as an asset:

However, in the “Suppliers” account, the same purchase is recorded in the ledger as a liability and, therefore, the amount appears in the credit column:

Relationship between journal and general ledger

The  journal is another fundamental element in financial management, since all economic activities carried out are recorded there chronologically and without being classified into accounts.

This is a mandatory book in Spain, and this is the main difference between a journal and a general ledger. However, both documents are closely related.

To achieve accounting consistency, both must be constantly updated following a process known as “posting,” which consists of transferring information from the journal to the general ledger.