general ledger accounting

general ledger accounting

Importance of General Ledger Accounting

1. Introduction to General Ledger Accounting

In all business and trade organizations, very well-planned economical systems are adopted, and all kinds of exploitation of newly developed electronic systems are utilized for risk controls, and for procurement of high speed by taking advantage of the facilities for the reaching to information. Especially in fulfilling the financial transactions within the scope of whole foreign trade operations, general ledger accounting and management information systems carry importance. With the consideration of such importance of the issue, advantages and the usage areas of the accounting and management information systems, which are used within the scope of general ledger operations, and all information technology equipments, software are presented within this study in details. Therefore, the companies will have more exact-preplanned information, and more exact information will be available to the companies for reaching the final decision.

In the world, with very high speed of communication systems and transportation, the number and complexities of financial transactions within far distance between two parties are also increasing. It is now usual that a manufacturing organization in a country of Europe may make business with a similar organization from a country in Asia. Generally, before acting a business, there should be product knowledge between two organizations who make this business. After having reached an agreement, a business contract is made, and then both organizations start to make the foreign trade. Generally, in those foreign trade business, payment systems of banks play a great role.

2. Benefits of General Ledger Accounting

A detailed analysis of the data may well indicate the need to carry out an adjustment posting. These posts are always traceable and can be added easily with the reporting function. With regard to the large amount of element contents as well as the many legal requirements for one-time evaluations (duration of the assessment, regulations governing the determination of the interest rate in respect of the individual entries, etc.), it is hardly feasible on a manual basis. Furthermore, the numerous leave entries and the current conditions in respect to entry sequences as well as the destruction or destruction of records require a high degree of software support to ensure that all German legal regulations can be fulfilled.

In addition to the usual entries made in the course of accounting activity, the general ledger records also provide the basis for all information required for tax and financial accounting. This data can also be analyzed and evaluated according to specialized aspects. By using these methods, business processes and data can be combined and the different regulatory requirements can be implemented. Hence, the results of the company, which are based on the different sets of rules, can be carried out using the same databases. This kind of linking is only possible by using an integrated approach, it is not possible by implementing standalone software solutions. For this, accounting software is provided with a broad range of evaluation tools, especially ones for additional evaluations tailored to meet specific needs. The recorded data is extensively evaluated, and the results can be presented in the form of lists or graphics. These evaluations also include all data, such as those relating to Asset Accounting and Supplier Account Ledger, optionally other applications like the Controlling module and tools such as SAP Business Warehouse.

3. Key Components of General Ledger Accounting

In the general ledger, all accounting data is stored. Among others, the recording of general ledger accounts is carried out starting from recording the beginning of the period to the end of the period. The term “beginning balance” itself consists of the sum of beginning balances as well as previous period profit/loss closure figures. The recording of general ledger data also functions as a place to record data analysis and manual journal sheets as a means of correcting to adjust entries or objects/transactions that are not yet connected. This often occurs when the recording of transactions in specific sub-account ledgers is posted only to a specific control account. In short, the general ledger will contain data in a more complex form, very different from those in sub-ledger and other accounting documents.

General ledger accounting should record the company’s activities, growth, profits, and spending in chronological order with complete entry and detailed information. This recorded gathered summaries will form the main financial accounting document, thus enabling the creation of a balance sheet, income statement, and cash flow statement (financial statement). The general ledger often acts as the primary database for financial statements, thus having a “check” function that ensures that the data is recorded and reported in accordance with applicable accounting standards. The quality aspect of general ledger accounting must reach the highest level of accuracy and reliability because the financial data is the basis of the company’s managerial decision-making process. In this regard, the role of general ledger accounting in forming high-quality financial statements is very important.

4. Best Practices for General Ledger Accounting

Implement activities that disable or modify the core general ledger parameters regarding the account maintenance application, account transaction entry or other functionality that is not used or is not possible, include but not necessary limited to: ‘forced balance’, ‘allow editing after closing’, etc. During “General Ledger closing”, the system administrator should leisurely monitor and supervise the general ledger closing process. The system should have a printing capability of the reports which compare the balances of subsidiary ledgers to the general ledger at month end. Ensure data mapping from operating entities to general ledger account codes are written procedures and system-generated. All data are entering directly from the source via sub ledger, journal entry, direct entry, or budget initiation. All entries are date stamped with the transaction date or effective date. All entries are balanced to equal debits and credits. If the accounting entry and/or account code of the subsidiary ledger and general ledger are system generated and not capable of changing by user. All transactions/entry is supported by documented records.

Ensure that your system uses date tracking of transactions. Always balance the subsidiary ledger to the general ledger. Accounting entry and account code of subsidiary ledger and general ledger should be system generated and should never be changed by the user. Document every entry and transaction thoroughly. Be consistent in coding and nomenclature structure in all accounting transactions in the subsidiary ledger. Your system should have at least report’s printer capabilities. Ensure your month-end report to reconcile subsidiary ledger to the general ledger. Prepare monthly reconciliation. Pre-adjusting entries at period end shall be a closed system. Each month ends, the system shall produce a report which provides the support detail for any adjusting entries.

5. Conclusion

Beyond the operational and statutory needs, the G/L is used to support key financial analytics and provides data for legally required compliance disclosure. While G/L is foundational to the business and operation of the company, manual errors and sub-optimal processes continue to severely constrain the business. Industries suffer from lost value revenue in a variety of ways such as Order-to-Cash (OTC) revenue leaks and Procure-to-Pay (PTP) operational costs.

Companies are faced with constant and demanding market pressures. Despite these pressures, it is critical to pay close attention to the foundation over which business operations are conducted. In the world of finance, the General Ledger (G/L) is the corporate repository for all historic balances, transactions, and resulting month-end and year-end reports. These include Balance Sheets, Profit & Loss Statements, Trial Balances, and a host of operational and regulatory reports. The importance of accuracy and timeliness cannot be emphasized enough. Recognizing this, some countries consider a Safe Harbor 10K (special statutory agreed filing) as per US GAAS for banks if the report is G/L based.

This white paper discusses the key aspects of General Ledger Accounting. These key aspects cover various functional modules and their interaction, the sub-ledgers that contribute, and how data from these systems flow into the G/L. In addition, we discuss the critical problem of reconciling the sub-ledgers with the General Ledger. Then we discuss various levels of process and systems improvement and automation classified by the size of the enterprise. Finally, it provides suggestions for common architecture components and the design of the process landscape.