How to Maintain a General Ledger
A general ledger acts as a summary of financial information about a company. The purpose of a general ledger is to show current balances in key areas. A general ledger should have four basic sections: Assets, Liabilities, Income and Expenses. Assets include supplies and cash owned by the company. Liabilities include outstanding debt the company owes to suppliers or investors. Income includes the amount of money earned by the business. Expenses are the cost of doing business, paying rent, employees, advertising and related items.
Things You Will Need
Set up the ledger master file. Ledger books have columns that run down the page. At the top of the page, label one column for each of the four fundamental sections of the ledger, Assets, Liabilities, Expenses and Income. To the left, depending on the volume of transactions the business does and how much detail you need, label rows by the week or by the month. This page shows the balance in each section at the beginning of each period.
Identify business assets. Determine the value of everything the business owns, including office equipment, supplies and money in business checking accounts. Add the total value of business assets and put that number in the first row of the assets column.
Identify business expenses. Determine how much money the business spends on salaries, rent, advertising and supplies. If the rows are labeled by the week, calculate expenses by the week. If rows are labeled by the month, calculate expenses by the month. Average out periodic expenses, such as insurance, so that amount does not get left out of expenses. Add the total value of business expenses and put it in the expense column.
Identify Liabilities. Calculate the value of business debt to investors or other long-term loans, such as that for a business car payment. Put this amount in the liabilities column.
Identify income. For a new business, this column will start out blank until money starts to come in. After the business has an income, that figure goes into the income column.
Calculate the totals for each column based on the period you selected for the rows. Place the new total in the row during each period.
Create a page for each of the four fundamental sections. Assets, Liabilities, Expenses, and Income should each have a page. Label the columns across the top of the page with a description of the item that fits that category. Assets, for instance, might have columns labeled supplies, merchandise, cash and office equipment. Make the final column a totals column. Label the rows by date. The first row should have the current value of each column item.
Maintain the ledger. Each time the value of an item changes, record it in the ledger book. On day one, for example, if the business sold merchandise valued at $100, the assets column should have $100 subtracted. Income would have $100 added.
Transfer information to the ledger master file. At the end of each period, transfer the amount in the totals columns to the master file. If you keep up with the general file on a regular basis, it makes maintaining the master file a simple matter of transferring the totals.