A company's top leadership establishes financial controls and procedures to prevent operating losses arising from fraud, theft or accounting errors. These controls, or procedures, must be adequate and functional to conform to regulatory requirements, professional standards and industry practices. Financial accounting and reporting controls include general ledger functions and activities.
An asset is an economic resource that a firm owns. Examples are accounts receivable, cash and inventories (short-term assets) or property, plant and equipment (long-term assets). A bookkeeper debits an asset account to increase its amount and credits it to reduce the account balance. He also records assets in the balance sheet, otherwise known as the statement of financial position.
A liability, or debt, is a loan that a borrower must repay when due. It may also be a financial promise that a company must honor on time. An accountant trainee credits a liability account to increase its amount and debits it to reduce the account balance. She also records liabilities in a company's statement of financial position.
Revenue is income a firm generates by selling goods or providing services. A bookkeeper debits a revenue account to decrease its amount and credits it to increase the account balance. He also records revenue items in the statement of profit and loss, also called statement of income.
An expense is a cost or charge that an organization incurs when selling goods or providing services. Examples include the cost of goods sold and salaries. An accounting clerk debits an expense account to increase its amount and credits it to decrease the account balance. She also records expense items in the statement of income.
Subsidiary ledger reports help a department head review the operating performance of a business unit or a customer group, and how such performance affects the corporation's total profits. For instance, an accounting manager may review the accounts receivable subsidiary ledger to identify a corporation's major customers and what percentage they hold in the firm's total accounts receivable amounts.
General ledger reports help senior leadership gauge a company's financial robustness and profit potential. These reports include a balance sheet, statement of profit and loss, statement of cash flows and statement of retained earnings (otherwise known as statement of shareholders' equity). Regulators, such as the U.S. Securities and Exchange Commission, require a company to prepare all four data summaries when reporting financial information.
Department heads and segment managers analyze ledger data to detect operating trends and business performance indicators. An operating trend may be gross margin, or sales minus the cost of goods sold divided by total revenue. A business performance indicator may be return on equity, or net income divided by shareholders' equity.