General Ledger: Its Importance In Small Business Accounting
Establishing good accounting and finance practices is crucial for every company aiming for sustainable success. These practices ensure that all a business’s money, be it incoming or outgoing, is well-accounted for and thus eliminates the risks of discrepancies and uncounted loss. This is all made possible by one of the most crucial accounting tools, the general ledger. A public register is a tool that has existed since the start of the business world and continues to evolve with today’s technology, transforming from leather-bound books filled with rows and figures into accounting software apps like Excel. Let us go into more detail about this indispensable tool and how it benefits small business accounting.
What is a general ledger?
Fundamentally, a general ledger is a primary record containing all a business’s income, expenses, assets, liabilities, and equities over its lifetime. The core document serves as the foundation of a business’s accounting system and the primary means to keep track of every transaction made. These records can then be sorted into subcategories that allow business leaders and their accounting team to find a summarised and comprehensive history of its finances.
A general ledger is created from accounting journal entries made for every completed financial transaction and in chronological order. It takes these financial transaction entries from the accounting journal, stated in debts and credits, and breaks them into separate accounts. Each entry belongs under one of the following accounts: revenue, expenses, assets, liabilities, and equity.
Benefits of a general ledger
1. Simpler tax filing and compliance
Proper bookkeeping is essential to prevent many accounting deficiencies that could affect the business’s bottom line. Moreover, it ensures complete accuracy in financial statements used for other obligations like licenses and tax filing. This detailed information also facilitates decision-making regarding financial projections and business planning based on the company’s state.
2. Accurate financial transactions
A general ledger is used to record statistical data and the transactions of a business. These transactions often come with details about clients, orders, and inventory, all vital information that helps companies plan for inventory purchases, develop pricing strategies, generate financial reports, and secure financing.
3. Detecting and preventing fraud
A general ledger is an essential resource used by audit firms in Singapore to detect and prevent fraud. They examine detailed explanations of each income and expense record to ensure that everything is appropriately classified and select other items for further review. As the single source of truth, the general ledger makes it easier for auditors and accountants to track down and trail transactions. And if ever something does not add up, they can refer to it and identify the root cause before it becomes a more significant issue.
Whether or not a business uses a general ledger is entirely up to them. While it may take some time to implement, the benefits it brings and the improved way of maintaining accuracy in recording transactions is undoubtedly worth it and makes administrative tasks like accounting simpler to do.
If you need professional help to get the most out of your general ledger, you can outsource the expertise you need with us at OneStop Professional Services. We strive to help businesses achieve the success they desire through our time-saving and professional services such as taxation, company incorporation, financial outsourcing, accounting and bookkeeping services, and audit services in Singapore.