General ledger software provides a complete record of the financial management of a business, including the transactional records and the account structure used to organize these entries into meaningful financial information. A general ledger is the core of your accounting ledger, as all entries from other applications flow into the general ledger. This financial information becomes critical to your business decision-making.
General ledger functionality is also found as a primary function in accounting systems. The general ledger will summarize the organization’s financial accounts which accounts payable and accounts receivable. Some of the main accounting items tracked in a general ledger include assets, liabilities, capital, revenues, and expenses. General ledger software gives your business the ability to create the company’s financial statements, such as income statements and balance sheets.
Bookkeeping at small businesses can be accomplished with general ledger software for simple data entry, basic financial reporting, or a desire to add subledgers to their Excel spreadsheets. CPAs and accountants may use general ledger software that was developed for accounting firms for the purpose of creating trial balances. Larger businesses may look to ERP software that provides a full business management suite, which will include a general ledger accounting module within its financial management section.
A general ledger software will help control your accounts and better organize your sub-account structure. It will also enhance your reporting and streamline any company consolidation that is needed. Some of the other key benefits of general ledger software include:
Using a general ledger software over manual processes keep you more organized and have your information more readily accessible. It will also transform the way you may record information into your general ledger. One example is the use of electronic data interchange (EDI), which can help update inventory general ledger records in conjunction with sales order transactions as they occur. In fact, automatic updates in your general ledger work best when your general ledger is connected to other functions in your accounting software, such as accounts payable or accounts receivable.
Because the GL provides a wide variety of functions related to a company’s core financial records, automation and efficiency features (reversing entries, intercompany transfers, drill-down, report scheduling, etc) can create significant financial savings through reducing costs related to executing administrative tasks.
Access to meaningful financial data (as provided by proper chart of accounts, departmentalized records, budget vs actual numbers) provides the foundation of managing a company “by the numbers” and allows for better business development decision making (what to invest in, performance evaluation, decisions on product lines, distribution methods, marketing decisions, expansion, etc).
GL optimization provides the clarity and controls necessary to reduce tax burdens. GL’s provide the core financial health reporting which may be needed by banks or other investors to secure capital.
One of the largest benefits of general ledger software is the ability to create custom financial statements and reports for up-to-date information on the well-being of the company. Some of these statements include:
Income statements explain your current company performance by monitoring debits and credits, bank account balances, and most importantly how much income has been made during a set period. They can help decision-makers understand various revenues and expenses that have occurred during the selected period. They also include metrics such as total income, the total cost of goods, gross profit, total expenses, and net income.
The income statement can help answer the following questions:
Financial ratios are relationships created from your financial information found in the general ledger software and are used for comparison purposes. In short, they help make sense of your financial data. They take a large amount of data and turn it into a performance indicator that your company can analyze.
An example of a financial ratio that can be created with general ledger software includes a common size analysis. This type of report translates each line item into a percentage of net sales. Each line in the income statement becomes its own financial ratio which uses net sales as a common denominator.
The benefit of these types of reports is their attention to each line item, and the ability to benchmark performance against other companies of different sizes.
Comparisons can help your business determine if your company is better or worse off than previous periods. Trend analysis is important in business so decision-makers know if what they are doing is working or if changes need to be made.
An income variance report breaks down income and expenses during the current period and a selected period, showing the difference and the variance percentage. These reports can let you know when sales are up or down, what type of sales are overperforming or underperforming, and to take better control of your product costs.