What is a General Ledger Reconciliation- Types, Features & Advantages

What is a General Ledger Reconciliation- Types, Features & Advantages

Accounting and bookkeeping are indispensable parts of a business. Whenever we think of start-ups, accounting comes automatically to our minds.

So let's understand some crucial points of accounting like- General Ledger, which is the most important segment of bookkeeping and how to reconcile it.

GL Reconciliation can be done by a particular bookkeeper or also by software. The automation process is much easier and faster than traditional methods.

What is General Ledger?

In every business and organisation, we need to keep a record of all Financial activities. To fulfil this aspect we use General Ledger. 

In simple language, a General Ledger is a method of maintaining accounts and all financial transactions in detail for a particular period.”

If we run a business or an organisation, we see that there are so many financial activities happening in a single day, of which we keep records in a journal book.

But after a long time, it is hard to find all data on debit and credit.

Therefore to avoid this trouble we use General Ledger, where we can easily find all accounting details related to debit, credit, cost, and much more.

Traditionally, General Ledger is kept in the form of books using the double entry method. 

But in this digital era, this process became easier with the help of computers.

By using the latest software, we can decrease the chance of error in General Ledger and we can keep it safe for a long time.

As we know that General Ledger is based on the Double Entry method.

So let’s understand this briefly:-

In General Ledger, Debit and Credit are the two sides where we do entries. The left side of the table of account represents Debit and the right side is for Credit. The total balance of both sides must be equal.

For example:- Aman buys a machine for his factory for 15000/-.

He credits his expenses amount for 15000/- and also debits his cash amount for 15000/-

Importance of Double Entry method

The Double Entry process keeps the record of every single transaction in at least two accounts which is helpful to prevent swindling or fraud. At present this process has become easier with the help of the latest softwares.

General Ledger Includes-

  1. Assets
  2. Liabilities
  3. Equity
  4. Income
  5. Experience

1. AssetsEverything that a business Owens, is an asset. Assets are of two types - fixed assets and Current assets. 

For a Business, Assets embody everything controlled and in hand by the corporate that is presently valuable or might offer financial profit in future. For example:-  patent, machinery and investments.

2. Liabilities - In simple language liabilities are debts.Or it is payable. Liabilities are obligations that a business needs to pay to an individual or a firm. 

There are three types of liabilities:- current liabilities, non-current liabilities and contingent liabilities. It can be long term or short term.

3. Equity –  The amount invested by the owner of the company is called equity. If we subtract total liabilities from total assets then we get equity. There are two types of equity- market value and book value.

4. Income - Income is the money that we get by selling

goods or services. Or money received by a company, employee, business or an individual  against any kind of work they have done or by selling something is called income or revenue. 

Commonly we call it profit. For example- I have 5 pens, each costs 20/- so the total cost price(cp) is 100/-. If I sell each pen for 25/- then the total selling price(sp) is 125/-. Now, if i subtract cp from sp then i will get the total revenue that is 25/- (125-100=25).

5. ExpenditureThe money used by a company or a business to procure new assets or to decrease liabilities, is called expenditure. When we talk about an expenditure we think it is an expense. 

But both are different. An expense refers to a scenario within which cash is spent, however there’s no benefit. 

Whereas expenditures talk over with pin money and receive some kind of direct or indirect price for this outlay.

What is the General Ledger Code?

“General Ledger code is a numeric value or a number that we allot to different files or statements.”

Let’s understand by an example:- 

If we have a hotel and there are 250 rooms in it. What do we do? We give specific numbers for each compartment/room. So we can find any particular one easily.

The same concept we apply in general ledger, is called GL CODE.

EXAMPLE:-   #200 for expenditure

                    And #500 for revenue.

Why? -  Because in a business, there are so many financial statements and it is a herculean task to find the specific one.  That’s why we use this code system in the general ledger.

What is the difference between GL and SL?

The basic difference between GL and SL is, general ledger(GL) is the primary set of accounts and Subledger(SL) as its name defines, is the subdivision of general ledger.

What is Subledger?

The details of general ledger entries are provided by the subledger. The detailed  record of accounting like-  Property and instrumentality, postpaid expenses etc. 

In a business if want to have basic financial review, we look for general ledger but when we need to explore the details of every single entry of general ledger,

( like- name of the customer, date of transaction, notes that are allied to the transaction), Subledger is required.

Benefits of subledger:-

       1. By using subledger we can swiftly substantiate the financial figures that we need.

      2.  In subledger, we create files of accounts distinctly in an organised way which can make an audit easier.

What is General Ledger Reconciliation?

General Ledger Reconciliation is the method by which we can ensure that the record of money in the account matches the actual financial transaction. General Ledger is important to know that the financial statements are accurate.

Commonly there are two methods of Reconciliation –

  1. Document Reviews
  2. Analytical Reviews

1. Document Reviews - In this method, the amount of each transaction is compared with the amount of income or expenditure.

2. Analytical Reviews - In Analytical Review, we check Perrin on the Balance sheet.

GL Reconciliation process:- 

The General Ledger Reconciliation procedure is conducted at the end of the year. 

Accountants go through every account within the ledge and verify that the balance enumerated is absolute.

To round off GL reconciliation, the following steps can be done:-

1. Get required details - The first move is to get ready a book of account reconciliation to the mandatory details of the general ledger that has to be reconciled. For this process, we need the finishing balance as of the end date. Reckoning on the accounts, we will conjointly need the period details of credit and debit accounts.

2. Scrutinize the ledgeNow, it's time to get ready for the final ledger audit. Go through all the transactions thoroughly and list your accounts. Don't forget to calculate each amount to get rid of backroom errors. In business, bank accounts play an important role in transactions. So it is necessary to reconcile all bank transactions.

3. Prob disparity If the final Ledger account balance can't be verified and we find the disparity between the final ledger account balance and supporting documents then the auditor looks into and takes applicable action to make this accurate.

Why is General Reconciliation important?

We can understand the importance of General Ledger Reconciliation by the following points – 

1. Base of financial statements - General Ledger is the base of official financial reports. So the reconciliation of General Ledger is very important. If there is some error or mistake in the General Ledger we can find out by reconciliation. It will make the official financial report of the Balance Sheet error-free.

2. Complete Record - General Ledger is the detailed record of all financial transactions. So General Ledger Reconciliation is necessary to check the fundamental activities.

3. Dignity and Financial Health - As we know General Ledger is the base of the Balance sheet, which is an official financial report. So it is important to reconcile the ledger after a particular time. By reconciliation, we can improve the financial statements that are the bone of the financial health of a company.

Difference between Ledger and Trial Balance

Ledger - The ledger is the detailed record of all fiscal

activities or transactions which includes different types

of accounts like- assets, liabilities, income, expenditure,

and equity.

Trail Balance - It is prepared by the company at the end of the year, based on General Ledger. An organisation prepares Trial balance to check the mathematical error.

“Especia” solution for all accounting problems:-

Hence, we know how accounting statements are necessary for a business or an organisation. So we have to always beware about taking care of our accounts.

Or, we can say that managing the accounts properly is an essential part to run a business satisfactorily. So it is better to have someone to handle your accounts, who has the best knowledge as well as experience of it.

"Especia" can be the right choice for your business.

Especia associate LLP provides the best accounting services in India for the last decade.

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It also provides an online consultancy service for the financial crisis.

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