A general ledger is used by many businesses to help balance accounts and keep track of money and expenses, and many items are included in such a ledger. Common transactions, such as taking money to or from a bank or using money to pay employees, are recorded in a general ledger as credits and debits. Assets such as the worth of machinery and other equipment also are recorded, and the person controlling the ledger may change the value of assets as time progresses so they remain accurate. Dates are added to each item, because this helps the business keep track of when transactions take place, to ensure there is no internal fraud or stealing. Descriptions also are added to each transaction, so anyone looking at the ledger will know what the money was used for or how it came into the business.
The primary reason for using a general ledger is to record transactions. This includes any money going into or coming from the business. Transactions can be associated with withdrawals or deposits made at a bank, paying employees, operational expenses and bills, invoice payments, and sales and returns within the business. Most ledgers have separate columns for debits and credits, but some have a single column and the writer must add a plus or minus sign to signify if money is coming or going.
Most businesses have assets, such as equipment or inventory, and the assets’ value is recorded in a general ledger. As assets change in value, the person in charge of the ledger will often note these differences. For example, as equipment ages, its value goes down and this decline may be marked in the ledger. Recording the value of assets helps a business know how much solid money it has.
Dates may seem unimportant, but a general ledger is used to set up an audit trail, so they typically are very useful. If there are fraudulent transactions, then someone can check the dates to see when fake transactions occurred. This also helps the business understand financial trends, and this information can be applied to the future.
Another item typically added to a general ledger is a description column. Having a large list of credits and debits may be difficult to follow, especially if the reader does not know what each transaction is for. Adding a description makes it easier to audit the ledger, and the reader also will know exactly what the money is being used for.
