If you are in business, you have data-it’s just a simple fact. It’s what you DO with that data that can greatly affect your business success. Do you throw all of your invoices and receipts into a drawer? Or worse yet, do you not even keep that information at all? Doing either of these leaves you in the dark about your business finances, which can quickly end in the demise of your business. This is why general ledger accounting was created. General ledger accounting is a system whereby, in a double entry accounting system, each transaction is posted using debits and credits. The purpose of general ledger accounting is to know where you stand financially, so you won’t have to guess about your financial position, and you can make better decisions.
To record, in the formal sense of accounting, means to make an accounting entry in a journal or in a ledger. What has previously handled in a paper journal is now typically handled by a computerized accounting system. The analysis of business transactions in the form of old-fashioned journal entries is still important; it is merely handled in a different (and more efficient) method as technology has grown over the years: with a computer and software.
Each transaction must somehow be recorded so that people may be able to refer back to the details of that transaction. The ‘journal’ serves as a diary where each transaction is recorded. The next step is to take the same transactions and record them into the ledgers. Journal transactions are recorded chronologically as units. The ledger is organized into as many different accounts as needed to accumulate the pieces posted from the journal, and are classified according to significant financial elements.
Once a general ledger accounting system is set up and in use, it provides extremely useful information to the business owner, allowing him or her to base future decisions on solid financial information.