What is a general ledger?

What is a general ledger?

All successful businesses must adhere to strong accounting practices. As part of a successful accounting system, businesses must set up and use a general ledger that works for their business. Continue reading for more on what a general ledger is and the role it plays in any business.

What is a general ledger?

A general ledger, or GL, is a means for keeping record of a company’s total financial accounts. It provides businesses a record of each financial transaction that takes place. There are different types of accounts on a GL in which these transactions can be recorded. These accounts are:

  • assets
  • liabilities
  • equity
  • expenses
  • income

After the transactions have been posted, they are summarized, and the business’ accountant generates financial reports (balance sheet, profit & loss, etc).

How is a general ledger used in terms of payroll?

Accounting for payroll can be an administrative burden. Using an accounting software, like Quickbooks, streamlines the accounting process. Within these accounting systems, custom general ledgers can be set up for a business’ specific needs. The GL can be broken down to provide further details of the overall payroll expense. Individual line item accounts, or sub-categories, for employee wages, payroll taxes, benefits like retirement and insurance contributions, and more can be established to provide greater detail for the overall expense.  This information can even be broken out to a department, team, or division level if needed.

Since you, as the business owner, are ultimately liable for all payroll, taxes and employee liabilities, you will want to ensure that you are tracking this all appropriately. Further, payroll must be posted correctly so that your CPA can take these deductions appropriately on your annual tax return.

How to post a payroll transaction on the general ledger

Your payroll has been processed and the money has been taken from your account. You must now post this payroll expense to your general ledger system. To do this, you must break down the total expense into the correct sub-ledgers. Certain parts of the transaction will be posted as a “debit” and others will be posted as a “credit”. In order for your books to balance, the total debits must equal the total credits.

For example: Company A’s weekly payroll is below. The total is broken down into sub-ledgers and posted as follows:

GL AccountDebitCredit
Bank Account $62,948.27
Wages$60,697.39 
Office Supply Reimbursement$1,425.57 
Mileage Reimbursement$649.05 
   
Employer Payroll Taxes$4,890.37 
Retirement Payable $460.87
Health Insurance Payable $3,170.94
Dental Insurance Payable $684.46
Life Insurance Payable $42.36
Vision Insurance Payable $100.34
Employee Advances $288.46
HSA Payable $258.68
Professional Fees$292.00 
   
Totals:$67,954.38$67,954.38

You can see in the sample above that the total debits in the left column equal the total credits in the right column. This is an example of one journal entry in your general ledger. Each row in the entry is a separate general ledger account. In order to show the balance of each sub-ledger, an accountant would prepare a trail balance report.

Please contact us should you need any assistance regarding your business’ general ledger.

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