A company's general ledger is kept to avoid making careless errors in financial reports, to track financial purchases and to provide

evidence of the company's transactions. The general ledger is a summary of all of the transactions that occur in the company. It is taken directly from the general journal, where each transaction is initially recorded in chronological order. All of the best accounting software includes a general ledgar that can be shared with your accountant. Why is the general ledger important? The balance sheet and the profit/loss statement are both derived from the general ledger, which are the two most important financial documents in your company. Because it is organized by accounts, the general ledger allows you to observe the activity in any account at any given time. The general ledger is where posting occurs, which is the process of recording credits and debits in the general ledger. How is the general ledger organized? The general ledger is usually organized into T-accounts showing both debits and credits of every account. It should include the date, description and balance entries for each account. It is usually divided into at least five main categories. These categories generally include assets, liabilities, equity, revenue and expenses. The main categories of the general ledger may be subdivided into subledgers to include details such as cash, accounts payable, accounts receivable, etc. Important recording entry tips. First, credits always equal debits. This means that there should always be two entries into the general ledger for each transaction. Next, when an item is posted to a subledger, you should always post it to the general ledger as well. You should be able to access all important information from the general ledger. Also remember to keep all of your source documents. These are the papers that support your transactions such as, shipping orders, bank statements, payroll and other paper evidence of your transactions The general ledger is an important tool for keeping your accounts organized and providing proof of your expenditures. It can be used to correct errors in accounts, observe company activity and can help you make wise financial decisions to better guarantee your business's future.
Business owners commonly use a general ledger to record and maintain their financial transactions. General ledgers provide business owners with one location in which to review financial information and gauge their companys performance. Reconciliations are a common accounting function. Business owners reconcile their financial information to discover any financial errors or improprieties. General ledger reconciliations also allow business owners to review their companys entire financial information to ensure it represents a true picture of the companys financial health.

Account Reconciliations
General ledger reconciliations usually start with individual financial accounts. Most companies use financial accounts to record specific financial transactions. Asset, liability, owners equity income and expense are the most common types of financial accounts in the general ledger. Rather than tackling the entire general ledger at one time, business owners often reconcile individual accounts first. Balance sheet accounts, such as asset and liability, are primary general ledger reconciliation accounts.

Trial Balance
The trial balance is an important accounting tool for reviewing general ledger information. Business owners can run the trial balance sheet, which presents financial information in a list format according to the account number, account name and balance. This information provides a concise summary of the companys general ledger. Owners can review the trial balance and look for any oddities in the account balances. Any issues needing correction should be noted for easy reference.

Journal Entries
Journal entries are an accounting tool business owners use to correct general ledger information. Business owners typically prepare journal entries once the trial balance review is complete. Business owners will create journal entries to correct account balances or adjust financial transactions to accurately represent financial information. Companies may also use journal entries as part of their close-out reconciliation process. Most companies reconcile their general ledger prior to closing out their financial information at the end of an accounting period.

Adjusted Trial Balance

Business owners should run an adjusted trial balance once all journal entries from the general ledger reconciliation process are entered. This ensures all information is correct in the companys general ledger. Any additional changes in information can be made using journal entries prior to running financial statements.

Financial Statements
Financial statements usually represent the final output of a companys accounting process. Business owners create financial statements upon completing the adjusted trial balance review. Financial statements are the formal documents business owners will use to measure their companies' performance. Banks, lenders and investors may also use financial statements to ensure the company is properly maintaining its accounting records and general ledger.

General ledger to sub-ledger reconciliation type with step by step instructions.

1. Nature of general ledger to sub-ledger account reconciliation

In another article about reconciliations (see "Bank Account Reconciliation"), we reviewed in detail the purposes of accounting reconciliation statements, identified two major types of reconciliations (bank reconciliation and general ledger to sub-ledger reconciliation), provided step-by-step instructions for the bank reconciliation process, and showed a real life example of the bank reconciliation. In this article, we continue explaining the reconciliation process and switch our gears to the general ledger to sub-ledger reconciliation. 1. Step by step instructions for general ledger to sub-ledger reconciliation Reconciliation of the general ledger to sub-ledgers is another type we will review. The general ledger (or simply "ledger" or "G/L") is a collection of all balance sheet and income statement accounts. The general ledger also includes all journal entries posted to accounts. In nowadays' computerized world, the ledger is maintained in an electronic form. A sub-ledger is a detailed record of transactions for an individual account. Usually, a subledger contains detail of transactions for an account, which are summarized by day (or month) and the total is then posted to the general ledger. Therefore, sub-ledgers serve as support for amounts posted to the general ledger. Sub-ledgers are presented in an electronic form as well (e.g. Excel file, detail of an account in QuickBooks, SAP or Oracle). For example, accounts receivable sub-ledger may contain detail for all issued invoices and cash receipts. At the end of a day, an accountant can summarize all invoices issued (sales) and cash receipts (cash collections) and post them to the general ledger in two separate journal entries. The general ledger would not contain detail for each individual transaction. As there is always room for a human error, it is important to reconcile the general ledger balances to the sub-ledger balances on a periodic basis to spot such errors. If there are no errors in posting journal entries to the general ledger, then the two balances will match; however, if there are differences, then there would be reconciling items, which need to be analyzed and corrected, if necessary. Two important accounts that should be reconciled on a monthly basis are accounts receivable and accounts payable. Illustration 1: General ledger to sub-ledger reconciliation statement
Balance per general ledger: Add / (Subtract) Items in general ledger not in sub-ledger: Item a short description Item b short description Add / (Subtract) Items in sub-ledger not in general ledger: Item c short description Item d short description Adjusted balance per general ledger Balance per sub-ledger Difference between general ledger and sub-ledger Y X Z

Reconciling items (if any) Reconciling item I short description Reconciling item II short description Total reconciling items (= Difference) Z

Sometimes items (amounts) are included into a sub-ledger, but not in the ledger. Vice versa, items (amounts) may be posted to the ledger via a journal entry, but not recorded in the subledger. Such items should be identified on the reconciliation separately to ensure they are given proper treatment. Let's now take a look at a four step approach for an accounts receivable reconciliation and an accounts payable reconciliation. Step 1: Compare G/L balance to the sub-ledger balance You should start by analyzing the G/L and sub-ledger balances to identify any differences. While doing that, pay special attention to the transactions that are unusual in their nature. For instance, non-recurring transactions may have a higher risk of an error than transactions completed on recurring and regular basis. You should examine the sales journal (for receivables) and the purchases journal (for payables); have a look at posted entries, which were posted to the wrong account, transactions posted twice (duplication error), transposition errors, etc. Then you should look at the cash receipts and cash payments journals (for receivables and payables, respectively). Possibly, you will need to repeat with your examination of the invoice register for accounts receivable and the purchase order journal for accounts payable. Step 2: Investigate reasons for the difference After you have compared the G/L and sub-ledger and found differences, you should investigate reasons for them. Reasons for the difference can include the following:
Items posted to G/L, but not in sub-ledger Items posted to sub-ledger, but not in G/L Errors

Some of these items require adjustments to the G/L while others require adjustments to the subledger. Illustration 2 shows where an adjustment is needed depending on the reasons for a difference.
Reasons for Difference Example Where to Adjust Adjust G/L

Adding up error The sales day book (or purchases day book) has been overstated / understated by wrong summarizing of totals Omission A debit / credit balance has been omitted from the list of customer / supplier account balances

Adjust sub-ledger

Reasons for Difference Duplication

Example A customer / supplier account balance of the same transaction has been posted twice by mistake A sales / purchase invoice recorded in the individual account as $XY instead of $YX A total in the sale / purchase day book has been carried forward as $ACB instead of $ABC

Where to Adjust Adjust sub-ledger

Transposition

Adjust sub-ledger Adjust G/L Adjust G/L

Set-offs in individual accounts

A credit balance on the suppliers ledger has been set off against a customer's ledger debit balance

Step 3: Adjust G/L and/or sub-ledger The next step is to make necessary adjustments to the G/L or to sub-ledger(s) based on the reconciliation to correct any errors, omissions, etc. To identify what needs to be adjusted, you could use the template of the general ledger to sub-ledger reconciliation statement presented above. Step 4: Compare adjusted balances Finally, compare G/L balance to sub-ledger balance again, after all necessary adjustments were made. If reconciling items are resolved, the reconciliation process is completed. If there is a difference, continue to examine the sub-ledger and journals that are a part of the revenue and expenditure cycles to identify the problem and correct it.
. Real-life example of accounts receivable reconciliation

Let's now work through a real life example of an accounts receivable reconciliation. Suppose, on June 30, 20X9, the balance in the G/L accounts receivable account was $2,790. The total balance of the detailed accounts receivable listing (sub-ledger) amounted to $2,900. The following additional information was also available:
Discounts in the individual accounts amounting to $80 have not been recorded in general ledger. The sales day book was understated by $200. An invoice has been recorded in the individual customer account as $980 instead of $890. A debit balance of $100 has been omitted from the detailed listing.

We need to prepare the accounts receivable reconciliation as of June 30, 20X9. Step 1: Compare G/L balance to the sub-ledger balance Comparison of G/L and sub-ledger balances shows that they do not equal ($2,790 and $2,900 respectively). Therefore, we need to proceed analyzing the G/L and sub-ledger balances to identify the differences.

Step 2: Investigate the reasons for difference(s) We can use the information provided initially to identify the differences. For the differences discovered we should decide where (i.e. G/L or sub-ledger) adjustments should be made:
Errors Discovered Discounts in the individual accounts amounting to $80 have not been recorded in the G/L The sales day book was understated by $200 An invoice has been recorded in the individual customer account as $980 instead of $890 Reason for Difference Omission from G/L Adding up error Transposition Adjustment Adjust G/L Adjust G/L Adjust sub-ledger Adjust sub-ledger

A debit balance of $100 has been omitted from the Omission from the list detailed listing of customer account balances

The first two errors relate to adjustments in general ledger account, two last errors relate to corrections in sub-ledger. Step 3: Adjust G/L and/or sub-ledger When adjusting the balance per G/L, you can post the journal entries to the G/L to make the corrections. On the other hand the changes in the sub-ledger do not have to be adjusted via journal entries in the G/L because the sub-ledger feeds into the G/L. So, in the case of adjustments in the sub-ledger, you should make corrections to items in the sub-ledger. Illustration 3: General ledger to sub-ledger reconciliation statement
Balance per general ledger: Add / (Subtract) Items in general ledger not in sub-ledger: Adding up error Add / (Subtract) Items in sub-ledger not in general ledger: Omission (discount allowed) Adjusted balance per general ledger Balance per sub-ledger Difference between general ledger and sub-ledger Reconciling items (if any) Balance omitted from detailed listing Transposition in the customer account Total reconciling items (= Difference) 100 (90) 10 (80) 2,910 2,900 10 200 $ 2,790

Step 4: Compare adjusted balances

Compare G/L balance to sub-ledger balance again, after all necessary adjustments were made. They agree (both equal $2,910), so the reconciliation process is completed. As mentioned before, reconciliation is an important process to ensure company's balances are stated correctly. Reconciliations should be prepared timely, by knowledgeable employees, and include detailed analysis of reconciling items. Reconciling items should be adjusted in the ledger when deemed necessary. Proper segregation of duties should be put in place for the reconciliation process. Items on the bank statement but not in cash accounts should be posted to accounting records to ensure the financial statements are not misstated at a period end.

Accounting is a detailed process for recording and reporting a company’s financial information. Businesses often use several different ledgers and journals to maintain records of financial transactions. Rather than placing all business and financial transactions into one ledger, companies often use several subsidiary ledgers for this information. Business owners can then review specific information and conduct an analysis on a portion of their company’s financial information.

History
Luca Pacioli, an Italian friar, is known as the father of accounting. Pacioli developed an accounting method using ledgers and journals to record financial information. Debits and credits were also an important part of Pacioli’s system. Pacioli described his accounting system as self-balancing--all

total debits would equal all total credits in the ledger. The trial balance was also created at this time, which included the aggregate information from the company’s general ledger.

Facts
Subsidiary ledgers contain detailed information regarding business transactions and financial accounts. This information is maintained separately from the company’s general ledger. Large business organizations often use subsidiary ledgers because they have large numbers of financial transactions. The general ledger includes information that does not meet the specific requirements of subsidiary ledgers. However, companies prefer to use subsidiary ledgers when recording financial transactions to limit the amount of detailed information in the general ledger.

Types
Subsidiary ledgers can include purchases, payables, receivables, production cost and payroll. The purchase ledger contains information relating to the acquisition of inventoried or assets. Payables outline money owed to vendors or suppliers. The receivables ledger contains information on customers who owe the company money. Production cost ledgers contain management accounting information relating to the production of goods or services. The payroll ledger includes information relating to the salary and wages of employees.

Function
Subsidiary ledgers allow business owners to separate accounting duties and responsibilities. Individual employees usually complete functions relating to one subsidiary ledger. General staff accountants may be responsible for reviewing the company’s general ledger and other subsidiary ledgers. The general ledger usually contains the aggregate total for each subsidiary ledger. Staff accountants review the information in the general ledger to ensure it includes all financial transactions.

Considerations
Small business owners should consider using an automated accounting software program for their accounting process. Accounting software automates several accounting functions and can reduce employee calculation errors. Accounting employees are still responsible for managing specific financial transactions or accounting information. Employees use basic data entry skills to input information into the accounting software. The software can then produce financial statements based on preset guidelines created by the business owner.

Subsidiary Ledgers
A subsidiary ledger is a group of similar accounts whose combined balances equal the balance in a specific general ledger account. The general ledger account that summarizes a subsidiary ledger's account balances is called a control account or master account. For example, an accounts receivable subsidiary ledger (customers' subsidiary ledger) includes a separate account for each customer who makes credit purchases. The combined balance of every account in this subsidiary ledger equals the balance of accounts receivable in the general ledger. Posting a debit or credit to a

subsidiary ledger account and also to a general ledger control account does not violate the rule that total debit and credit entries must balance because subsidiary ledger accounts are not part of the general ledger; they are supplemental accounts that provide the detail to support the balance in a control account.

The accounts receivable subsidiary ledger is essential to most businesses. Companies may have hundreds or even thousands of customers who purchase items on credit, who make one or more payments for those items, and who sometimes return items or purchase additional items before they finish paying for prior purchases. Recording all credit purchases, returns, and subsequent payments in a single account would make an individual customer's balance virtually impossible to calculate because the customer's transactions would be interspersed among thousands of other transactions. But the accounts receivable subsidiary ledger provides quick access to each customer's balance and account activity. Companies create subsidiary ledgers whenever they need to monitor the individual components of a controlling general ledger account. In addition to the accounts receivable subsidiary ledger, companies often use an accounts payable subsidiary ledger (creditors' subsidiary ledger), which has separate accounts for each creditor, an inventory subsidiary ledger, which has separate accounts for each product, and a

property, plant, and equipment subsidiary ledger, which has separate accounts for each long-lived asset.

General Ledger Reconciliation Definition A general ledger can be defined as the financial record of every transaction of a company. Commonly, it is referred to as the "books" of the company. In the general ledger each of the transactions are recorded twice, as both a subtraction (debit) and addition (credit). The general ledger is the main accounting record of the company. Consequently, general ledger reconciliation is the process of ensuring that accounts contained in the general ledger are correct. In short, reconciliation is making sure that the appropriate credit and debit are placed in the associated accounts. Seemingly simple, this process requires an experienced bookkeeper when applied to small companies. Complicated applications require

the hand of a trained CFO or equivalent controller. In either situation, a general ledger reconciliation policy must by enacted to ensure consistency. General Ledger Reconciliation Explanation Not every general ledger account has a detail subsidiary ledger to reconcile to. Monthly all balance sheet accounts should be analyzed for accuracy. In addition, periodically it may be necessary to reconcile revenue accounts, expense accounts and miscellaneous balance sheet accounts. In these cases the procedures are similar to reconciling an account to a subsidiary ledger. A detail general ledger transaction report is printed for the account. Reversing journal entries correcting errors are eliminated. Any transactions that are unusual in nature are investigated. For example a debit entry or decrease to a revenue account would be unusual. Finally, a detailed schedule of transactions remaining in the final balance would be prepared. General Ledger Reconciliation Process Some wonder "what is general ledger reconciliation?". Others wonder how to do general ledger reconciliation. For bookkeepers, the following process is generally adhered to: First, study the accounting policy of the company. Ignorance to this is missing the essential foundation of the process; knowing the rules is key. Second, gather information. These include receipts, invoices, account statements, invoices, and related financial reports. This data is the information put into accounts by accounting staff. Third, ask questions about the accounts. What are the items purchased? Do they relate to company policy? For what reason are they included in the given account? When were they spent/made? Finally, document your work. Proper documentation ensures properly reconciled accounts as much as it ensures effective bookkeeping in the first place.