A general ledger is a critical component of business accounting. It is the main ledger that summarises all transactions and financial events for a company. The general ledger provides a comprehensive record of all debit and credit account balances, which are used to generate important financial statements. For small businesses, maintaining your general ledger is crucial for managing finances and having visibility into the health of your operations.
Thankfully, cloud-based accounting software has made it easier than ever for small businesses to set up and manage a general ledger. With accounting software, businesses can both access and manage accounting data from different sources and locations into one system of record. In this article, we’ll go through how to manage your general ledger and everything you need to maintain it well.
Creating your chart of accounts
When setting up your general ledger, one of the most important steps is establishing your chart of accounts. This is the structure of accounts you will use to categorise transactions and organise your finances. For any business, your chart of accounts should include accounts for major categories like assets, liabilities, equity, revenues and expenses. However, your account types should also be tailored to your specific business activities.
For example, an e-commerce company would need dedicated accounts for things like:
- Online sales,
- Payment processing fees,
- Website costs,
- Shipping expenses,
- Sales taxes.
Take time to think through all of the accounts you will need to track inbound and outbound transactions for your business. The key is setting up your chart of accounts to provide the transaction classification details you need for reporting and analysing your finances.
Yonatan Bley, Head of Product Marketing from leading business platform, MYOB, shares his expert commentary on the importance of a well-planned chart of accounts, “Consider how your business might grow when setting up your accounts. For example, numbering your accounts in a way that allows you to scale to multiple divisions or locations.
“We’ve partnered with Amaka to provide accounting integrations that can automate the process of creating accounts specific to e-commerce sales by connecting your e-commerce platform to MYOB. Then, it will automatically sync sales transactions into the relevant accounts. If you have existing accounts, you can use these and customise the account mapping.”
Performing regular reconciliations
To maintain accuracy in your general ledger, it is critical to perform regular account reconciliations. This involves verifying account balances match supporting documentation like bank statements, supplier invoices, and other transaction records. Frequent reconciliations help identify any discrepancies that could indicate omitted or duplicate transactions.
Cloud-based accounting systems make it easy to automate reconciliations for accounts like bank and credit card accounts. Bley explains, “We allow users to connect their financial institution to automatically import statement data records.
“The transactions can then be reconciled, ensuring your cash accounts match the bank. Taking advantage of automated reconciliation features reduces manual work while giving assurance that account balances are up-to-date and error-free.
“For e-commerce businesses, Amaka’s accounting integrations automatically account for sales and fees with payouts reconciliation which means you don’t need to manually match up each of these transactions to your bank statement.”
Maintenance tips to preserve accuracy
Maintaining accuracy when reconciling general ledgers involves simple regular practices to follow that will keep it clean and accurate over time. This includes tasks like:
- Making closing entries to reset temporary account balances,
- Reviewing for unused accounts that can be removed,
- Purging old transactions while retaining backups,
- Check for and fix any duplicate entries incorrectly recorded,
- Verify auto-reversed entries properly,
- Reclassify accounts if your chart of accounts changes.
Conducting periodic audits where you compare general ledger totals to your trial balance can help identify potential issues to address. Finally, you should archive old ledgers for recordkeeping purposes after closing out yearly accounting periods, while keeping the current general ledger file active. Making these maintenance procedures part of your regular accounting workflow will improve the integrity of your general ledger data for more reliable financial reporting.
The importance of a clean general ledger
Having an accurate, well-maintained general ledger is imperative for e-commerce businesses. The ledger directly impacts the quality of financial statements and reports that guide critical business decisions. Performing thorough account reconciliations and following best practices for ledger upkeep makes it possible to identify and correct errors or discrepancies. This disciplined approach to general ledger maintenance preserves the accuracy of the ledger over time.
Regularly reconciling accounts and taking preventative maintenance steps ensures the general ledger remains the reliable, centralised source of information on a company’s financial position. With an organised and precise general ledger, businesses can confidently use their accounting data for analysis, planning and strategy.
Leveraging technology for efficiency
Modern accounting software provides tools that can optimise general ledger maintenance. Bley says, “Cloud-based accounting platforms enable remote access so accounting staff can collaborate on ledger upkeep from multiple locations.
“On top of that, MYOB offers automated reconciliation for accounts like bank and credit cards to significantly reduce time needed for these processes. Finally, software audit trail reports provide transparency, making any unauthorised changes easy to identify.”
With the right technology in place, mundane ledger maintenance tasks can be reduced or eliminated so accounting teams can focus their time on more strategic initiatives. The capabilities of today’s accounting systems remove much of the manual effort traditionally required to keep general ledgers organised and up-to-date.
Key takeaways on maintaining the general ledger
With the right knowledge and systems in place, you’ll be able to handle general ledger maintenance simply.By applying these tips and utilising the right automation tools, you’ll be able to maintain best practices in your accounting. Through using a cloud based accounting software and conducting regular reconciliations you’ll continue to be compliant and regularly see that your business operations are running smoothly.