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Every aspect of your business needs to be recorded in order for it to be analyzed for accuracy. This is where the general ledger comes in. A general ledger consists of every account from your chart of accounts. Journal entries made into the general ledger help to determine your assets, liabilities as well as net profits (or losses). A general ledger also is key in creating your company’s balance sheet and income statement each month.
A general ledger consists of the main elements of your business:
1.Assets
2.Liabilities
3.Owner Equity
4.Income or Sales Revenues
5.Expenses
Each of these main general ledger accounts has many sub-accounts that are utilized to compile the totals in the main accounts. But how do these relate to preparing a general ledger? A general ledger comparison might be if you were baking a cake. You need ingredients like flour, eggs, sugar, and baking powder to get to your final result the cake itself. Your general ledger utilizes sub-accounts as ingredients that flow into the main general ledger accounts.
Your general ledger sub-accounts are also a way for you to audit and analyze the financial elements of your business.
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