If you run a business, in any capacity, you need to have a general ledger. You have to have some sort of system that handles the sales and purchases of your company. Not only will it make tracking your finances easier, but it will also help your accountant figure out your tax requirements at the end of each year.

Continue reading to learn about the different components of a general ledger and why you need one. 

Why Do You Need a General Ledger?

The idea of a general ledger is to track the financial transactions for your company. Without it, you may find yourself in a heap of financial trouble. It is necessary to make sure that you are paying outstanding debts on time while keeping everything organized. The basic setup of a general ledger goes like this: 

Date > Journal entry > Description > Debit > Credit > Balance

Each entry needs to be accurately labeled. It needs to be dated and described in complete detail so that you and your accountant are on the same page. Each entry will have a monetary amount in either debit or credit, depending on how these transactions affect your bank account. The ending balance of your ledger should match that of your business’s bank account.

Your general ledger doesn’t have to be on paper. You can manage your business accounts with these virtual debit card features from Bento for Business. You may find that this semi-automated process will help to run your business more efficiently.

What Are the Components of a General Ledger?

A general ledger will help to track a company’s assets, liabilities, equities, revenues, and expenses. It helps you to balance incoming earnings and outgoing payments in one central location.

Assets

Assets help a company generate revenue. They include accounts receivable, cash, inventory, property, and equipment. All of these things are used to run a business and bring in a profit. 

Liabilities

Liabilities come into play when the business pays money out towards the items that help the business run successfully. This includes accounts payable, employee payroll, bank loans, and customer deposits. 

Equity

Equity refers to the difference between your company’s assets and liabilities. This includes common stock, retained earnings, and total capital of the company.

Revenue & Expenses

Revenue refers to the amount of money from your sales, interests, and royalties that are accumulated through your business’s success. Expenses are the transactions that result in a loss of money for the betterment of the company, including rent and utilities. Without these, you wouldn’t be able to run a business.

Start Your General Ledger ASAP

The sooner you start tracking all of your business’s financial transactions, the sooner you will be able to balance your accounts. You will then be able to rest assured knowing that you are on the right track to financial success.

If you found this post to be helpful, make sure to check out our related content in the business section.