General Ledger Accounting – Everything You Need to Know

Making sense of how your company is performing and whether it is heading towards success or failure rests on good General Ledger Accounting. The good news is that with the acceleration of the digital economy and maintaining the perfect ledger is easier than ever.

Tracking what comes in and goes out is a fundamental basic requirement for every company. Before computers, the only way to keep track was to maintain a physical book – a ‘general ledger’ that details revenues, payments made, credits, assets, and expenses. General Ledger Accounting was always the starting point for understanding profit and loss and being able to create financial reports.

Then came the computer, Excel spreadsheets, and data entry software systems that made it easier to register, share and store ledger files. Now, with the emergence of AI-driven and analytics-enabled end-to-end procurement platforms, the game has changed again. What hasn’t changed, however, is the fundamental need for business owners, procurement professionals, and accountants to understand the different types of General Ledger Accounting and how they benefit the business.

Different types of general ledger and how they benefit the business.

• Double entry:
The gold standard and most important form of the ledger is ‘double-entry bookkeeping or ‘double-entry accounting. The system has two equal and corresponding sides, known as debit and credit. A transaction in double-entry bookkeeping always affects at least two accounts, always includes at least one debit and one credit, and always has total debits and total credits that are equal. There are many benefits to this.

Not only does double-entry bookkeeping ensure that the correct information regarding income and losses is provided, but it can help in the detection of financial errors and fraud. For example, if a business takes out a bank loan for $10,000, recording the transaction would require a debit of $10,000 to an asset account called ‘Cash’, as well as a credit of $10,000 to a liability account called ‘Notes Payable’.

As important as double-entry bookkeeping is, the process can be time-consuming because entries have to be entered and verified twice. It can also be difficult to locate errors if the information has been entered incorrectly.

• Journals:
Where a general ledger provides a general overview, journal entries are integral to understanding the detail. There are multiple different types of journal entries that make it possible to gain an in-depth understanding of different transactions. They include the ‘cash receipts journal’, which illustrates all cash inflows, ‘cash payment journals’ that list all cash flowing out, and ‘sales journals’ that list sales.

‘Purchase journals’ can also be created, showing all of a business’ credit purchases, while a ‘purchase return journal’, ‘sales return journal’, and ‘general journal’ can help to provide even greater visibility on the granular details. Any company that uses and adheres to all of these journal entries will be able to maintain full transparency, highly accurate cost controls, and basic accounting equation balances.

• Basic accounting equation:
At all times, the basic accounting equation must be balanced – that is, the fundamental goal: is to calculate the total value of assets by adding together the business owner’s equity and liabilities. If the equation isn’t balanced, it means that your financial reports are inaccurate and need to be audited. The good news is that with the onset of advanced end-to-end digital procurement platforms like Penny, it has become impossible for an out-of-balance entry to be made. Penny integrates a range of different modules into existing procurement and accounting software, making it possible for everything to be automated. That includes purchase requisitions, e-sourcing, purchase orders, goods received notes, bills, proforma bills, and payments.

Certified by ProcureTech Kearney Consulting as one of the 100 most innovative procurement solutions globally, cloud-based penny mitigates the room for human error by automating procurements, POs, RFPs, and payments – bringing everything together for ultimate visibility and cost control.

Enabled across multiple devices and incredibly easy to use, the penny platform is designed to help growing businesses reduce errors and optimize execution – making the old-fashioned job of bookkeeping an automated, flawless process that delivers success.