How to Keep Finance Ledgers
Finance ledgers, or general ledgers, are the records accountants keep in order to analyze their company's financial activities. General ledgers are half of the double-entry bookkeeping system, second to the accountant's journal, which keeps a chronological record of income and expense, according to Quick MBA. Once a transaction--such as paying a bill--is recorded in the accountant's journal and a source document--such as a receipt--is generated, the transaction can be posted in the general ledger. A ledger's requirements vary based on the size of the business; according to "Entrepreneur" magazine, small, cash-based businesses can keep a ledger that is similar to a personal check registry. That system does not suffice for larger businesses, which require more detailed ledgers.
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Things You'll Need
- Source documents
- Accounting journals
- Ledger paper
- Computer spreadsheet
- Bookkeeping software
- Audit plan
Instructions
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Collect source documents--receipts, invoices and work orders, for example--and the accountant's journal, which provide information that is essential for a ledger. Accountants may keep specialized journals for sales, purchases and cash receipts and disbursements, according to Quick MBA, so ensure the records you gather for the general ledger reflect every transaction for which the business is liable.
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Sort all source documents into categories and subcategories--such as invoices from suppliers and invoices from customers--and ensure they contain the amount of the transaction, the date on which it occurred and any other pertinent information, according to "Inc." magazine. Such organization provides documentation of all transactions should the business be audited or should an argument about a transaction arise. Ensure all source documents are fully recorded in the accountant's journal; such documentation is called a journal entry.
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Create ledgers and subledgers for each category of expenses and income the business has, using either a handwritten record, a computer spreadsheet or automated accounting software. Record each transaction in its appropriate ledger or subledger category, called "posting," then list the sum of money associated with the transaction and whether that sum was a credit or a debit to the account. You will use financial information recorded in the ledger when completing balance sheets, income statements and other reports that gauge the financial health of the business.
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Post transactions from the accounting journal entries to the general ledger on a regular basis, such as daily, weekly, monthly or quarterly. Your updates to the ledger should be consistent with the volume of transactions in which the business engages, according to "Inc." magazine, so a business with greater volume should post to the ledger more often than one with a smaller volume. Store journal entries and source documents that support ledger posts in a safe and organized place, such as a filing cabinet.
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Audit the ledger regularly in order to test its effectiveness and the effectiveness of the documents that support it. A ledger audit should meet objectives, such as ensuring all transactions are disclosed and that all information is accurate, such as the date and amount of each transaction, as well as the account responsible for it, according to the website ezrstats.com. AuditNet recommends ensuring the validity of all accounts on a general ledger by comparing totals for subcategories on the ledger with the total represented on the general ledger, then checking accounts that are questionable in nature, such as clearing accounts.
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Tips & Warnings
Regularly audit and reconcile all accounts represented on the general ledger; doing so ensures the data on the ledger is correct and accurately represents the company's financial position, and this will help accountants file taxes and complete other reports.
Data from the general ledger can identify spending trends that can be helpful in creating and updating the company's budget.
As the company grows, consider using bookkeeping software to streamline and automate part of the process of keeping a general ledger.
References
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