Why You Need a General Ledger

Business in today’s world is fast-paced and the need to keep track of expenses and revenues has increased tenfold. That is why we have accounting software that can give us a lot of insight into the financial workings of our business. But one system that is widely ignored is the general ledger. 

Here is why you need a general ledger.

What is a general ledger?

A general ledger, also known as a “statement of financial condition,” is a summary of a company’s financial status. The ledger lists all of a company’s assets and all of its liabilities. The net difference between the two is the company’s equity.

The ledger is divided into two main sections: current assets and noncurrent assets. Current assets are assets that are expected to be converted into cash within a year, while non-current assets are those that are not expected to be converted into cash within a year.

The ledger is also divided into two sections: liabilities and equity. Liabilities are divided into two categories: current liabilities and long-term liabilities. 

Current liabilities are liabilities that are due within one year, while long-term liabilities are liabilities that are due after one year. Equity is divided into two categories: common equity and preferred equity. Common equity is the portion of equity that is owned by the company’s common shareholders, while preferred equity is the portion of equity that is owned by the company’s preferred shareholders.

The general ledger is the main source of information for financial statements, which are used to report a company’s financial condition to its shareholders, lenders, and other interested parties. Financial statements include a balance sheet, an income statement, and a cash flow statement.

The benefits of having a General Ledger

A well-designed GL is an important tool for accounting and financial analysis.

• A good GL helps a business track its financial performance by providing a summary of income and expenses. The GL can also be used to track asset and liability balances, as well as cash flow. In addition, the GL can be used to produce financial statements, such as the balance sheet and income statement.

• A GL is also a key input into financial ratio analysis. Financial ratios are used to measure a company’s financial health and performance. Some of the most common financial ratios are the debt-to-equity ratio, the current ratio, and the debt-service coverage ratio.

• A well-designed GL is an important tool for accounting and financial analysis.

• A GL can help businesses track their financial performance by providing a summary of income and expenses.

• A GL can also be used to track asset and liability balances, as well as cash flow.

• In addition, the GL can be used to produce financial statements, such as the balance sheet and income statement.

• A GL is also a key input into financial ratio analysis.Financial ratios are used to measure a company’s financial health and performance. Some of the most common financial ratios are the debt-to-equity ratio, the current ratio, and the debt-service coverage ratio.

How large should your company be before you need a General Ledger?

There is no definitive answer to this question as it will vary depending on the specific needs of your business. 

However, as a general guideline, you should consider implementing a General Ledger once your company reaches a certain size and complexity. 

This usually occurs when you have multiple departments or locations, a significant amount of transactions, and a need for more detailed financial reporting.

At this point, a General Ledger can help you to better manage your finances and ensure that your financial statements are accurate and up-to-date.

Key takeaway

Your business needs a well-managed general ledger to keep things running smoothly. Without it, you risk making costly mistakes and not collecting the money you’re owed. Contact us today to learn more about how to manage your general ledger.