What is the Full Form of GL?

The full form of GL is General Ledger. It can be defined as the books of accounts that record ledger entries. It provides an extensive and systematic record of all the monetary transactions of an organization that is used to prepare financial statements and evaluate the overall financial well-being of an organization by allowing users to look at the broader picture.

Classification

GL can be classified as follows:

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  • Expense ledgers: This type of ledger is used for recording all the expenses incurred by an organization. Rent accounts, electricity accounts, etc., are examples of an expense ledger.Capital ledgers: This type of ledger is used for recording transactions about capital introduced or withdrawn from an organization.Income ledgers: This type of ledger is used for recording all types of income earned and accrued by an organization. Interest received, sales, etc. are examples of an income ledger.Liability ledgers: This type of ledger is used for recording all types of debts owed by an organization. Creditors, borrowings, accounts payableAccounts PayableAccounts payable is the amount due by a business to its suppliers or vendors for the purchase of products or services. It is categorized as current liabilities on the balance sheet and must be satisfied within an accounting period.read more, etc., are examples of liability ledgers.Asset Ledgers: This type of ledger is used for recording all types of asset-related information. Bank, cash, debtors, furniture, machinery accounts, etc., are examples of an asset ledger.

How Does it Work?

The accountants use a general ledger for storing and organizing financial informationOrganizing Financial InformationFinancial Information refers to the summarized data of monetary transactions that is helpful to investors in understanding company’s profitability, their assets, and growth prospects. Financial Data about individuals like past Months Bank Statement, Tax return receipts helps banks to understand customer’s credit quality, repayment capacity etc.read more used to create an organization’s financial reports. All financial transactions of an organization are posted to their dedicated sub-ledger accountsSub-ledger AccountsA subledger is a subset of several general ledgers used in accounting that may include all accounts receivable, payable, prepaid expenses, or fixed assets associated with financial transactions. It is extremely difficult to keep track of all transactions in a large organization’s common ledger; therefore, a subledger is the ideal solution for recording entire transactions.read more. These transactions are then summarized and used to prepare a trial balance, which acts as a report for every ledger account’s balance. The accountant then checks the trial balance to identify any errors and adjusts the same by posting necessary journal entries. The accountant then takes the adjusted trial balanceAdjusted Trial BalanceAdjusted Trial Balance is a statement which incorporates all the relevant adjustments. Although it is not a part of financial statements, the adjusted balances are carried forward in the different reports that form part of financial statements. read more into use to generate the financial reportsFinancial ReportsFinancial reporting is a systematic process of recording and representing a company’s financial data. The reports reflect a firm’s financial health and performance in a given period. Management, investors, shareholders, financiers, government, and regulatory agencies rely on financial reports for decision-making.read more.

Example

ABC Limited trades in furniture. It sold ten furniture units at $200 each to its retailer for cash on 10 January 2020. Post the ledger entries for ABC Limited concerning the above-said transaction.

Answer

The above-posted entries, i.e., cash and sales entries, will be posted to cash and sales accounts,respectively. The cash and sales account for ABC Limited are-

Need of GL

It is needed for the following reasons:

  • It helps in the identification of fraud.It helps users to minimize or eliminate errors and frauds.It allows users to stop abnormal transactions immediately.The general ledger helps the users to complete their trial balanceTrial BalanceTrial Balance is the report of accounting in which ending balances of a different general ledger are presented into the debit/credit column as per their balances where debit amounts are listed on the debit column, and credit amounts are listed on the credit column. The total of both should be equal.read more.It provides an accurate overview of business transactionsBusiness TransactionsA business transaction is the exchange of goods or services for cash with third parties (such as customers, vendors, etc.). The goods involved have monetary and tangible economic value, which may be recorded and presented in the company’s financial statements.read more.General ledgersGeneral LedgersA general ledger is an accounting record that compiles every financial transaction of a firm to provide accurate entries for financial statements. The double-entry bookkeeping requires the balance sheet to ensure that the sum of its debit side is equal to the credit side total. A general ledger helps to achieve this goal by compiling journal entries and allowing accounting calculations.
  • read more make filing income tax returns easy for the users since they have expenses incurred and income earned all in one place.General ledger allows users to compile their critical financial statements, including an income statementIncome StatementThe income statement is one of the company’s financial reports that summarizes all of the company’s revenues and expenses over time in order to determine the company’s profit or loss and measure its business activity over time based on user requirements.read more, cash flow statementsCash Flow StatementsA Statement of Cash Flow is an accounting document that tracks the incoming and outgoing cash and cash equivalents from a business.read more, and balance sheetsBalance SheetsA balance sheet is one of the financial statements of a company that presents the shareholders’ equity, liabilities, and assets of the company at a specific point in time. It is based on the accounting equation that states that the sum of the total liabilities and the owner’s capital equals the total assets of the company.read more. Thus, aiding in evaluation of profitabilityProfitabilityProfitability refers to a company’s ability to generate revenue and maximize profit above its expenditure and operational costs. It is measured using specific ratios such as gross profit margin, EBITDA, and net profit margin. It aids investors in analyzing the company’s performance.read more, liquidity, and financial wellbeing as a whole.

General Ledger vs. General Journal

The difference is as follows:

  • Definition: General ledger can be defined as an account used for sorting, storing, and summarizing the financial transactions of an organization, whereas a general journal can be described as a book of accounts that records every financial transaction in chronological order.Basis of entry: Entries are posted based on the affected accounts, whereas in a general ledger, entries are posted based on chronological order.Entry point: A general journalGeneral JournalThe General Journal is a book of entry that holds the initial record of every transaction before being posted to the concerned accounts like Sales Journal, Purchase Journal, & Cash Journal etc. read more is the first entry point, whereas a general ledger is the second entry point in accountancy for recording a financial transaction;

Advantages

The advantages are as follows:

  • The general ledger helps in learning the financial well-being of an organization at any point in time.It acts as an insight into a company’s transaction. A general ledger allows the auditors to take a deep plunge in learning an organization’s operations.A detailed analysis of general ledgers allows the auditorsThe AuditorsAn auditor is a professional appointed by an enterprise for an independent analysis of their accounting records and financial statements. An auditor issues a report about the accuracy and reliability of financial statements based on the country’s local operating laws.read more of an organization to form a deep understanding of the well-being of an organization.General ledger facilitates BRS or bank reconciliationBank ReconciliationCustomers perform bank reconciliation to tally their records with their respective bank’s statements because there may be differences between the customer’s books of accounts and those of the bank.read more statements, too, as all the financial transactions belonging to a particular bank account are recorded in one place.The classification factor enables the organization to view its debtor’s ledger totals in one go.

Disadvantages

The disadvantages are as follows:

  • Expensive and Time-Consuming: The general ledger system can be highly expensive and time-consuming. An organization may need to hire accountants to post their transactions to the general ledger. This system involves a lot of labor too. That’s why most small business organizations feel difficulty in opting for and managing the GL system of accountingSystem Of AccountingAccounting systems are used by organizations to record financial information such as income, expenses, and other accounting activities. They serve as a key tool for monitoring and tracking the company’s performance and ensuring the smooth operation of the firm.read more.Prone to Errors: Another disadvantage is that it could be the fact that these are highly prone to fraud and errors. The possibility of committing errors and mistakes is always high in a general ledger.

Conclusion

Thus General Ledger (GL) enables the users of the financial statementsUsers Of The Financial StatementsFinancial statements prepared by the Companies are used by different categories of individuals and corporates on the basis of their relevancy to the respective parties. The most common users to the financial statements are Management of the Company, Investors, Customers, Competitors, Government and Government Agencies, Employees, Investment Analysts, Lenders, Rating Agency and Suppliers.read more to look at the broader picture. It provides a systematic and meaningful record of all types of financial transactions of an organization that is highly useful in preparing financial statements. It allows users to evaluate the financial well-being of an organization. It can be classified as expense ledger, asset ledger, capital ledger, income ledger, and liability ledger.

This article is a guide to the Full form of GL (General Ledger). Here we discuss classification, examples, need, general ledger work, and its advantages and disadvantages. You may refer to the following articles to learn more about finance –

  • Ledger BalanceSubsidiary LedgerPurchase LedgerSales Ledger Meaning