Accounting books are crucial for a company’s financial system, with sales, purchase, cash, and general ledgers being the most common. Accountants record transactions in each ledger, and financial statements are the end result. Each ledger contains specific types of transactions, and the general ledger is used for transactions that don’t fit in the other ledgers. Separation of duties is important to prevent fraud or embezzlement.
Accounting books are among the most common, and most important, documents in a company’s accounting system. While there are many different types of ledgers, the most common are sales, purchase, cash, and general ledgers. Each of these ledgers contains a specific type of business transaction, making it easier for the company to find information at a later time. Accountants are responsible for preparing the company’s books and recording transactions accordingly. Financial statements are the end result of information taken from a company’s accounting books.
Sales ledgers contain all transactions related to the sale of inventory or services to customers. Counters record the date of the transaction, a brief description, and the amount of the sale. The general ledger usually contains data for a given month, as this is the most common procedure in accounting systems. Other information, such as sales discounts, returns, or other allowances, may also be in this ledger. Only data related to the company’s sales should be in this ledger at any given time.
Purchases have their own separate ledger in an accounting system. These ledgers only contain information about the money a business spends to purchase the items needed to run business operations. Accountants list information similar to the sales ledger, that is, the date of the transaction, a brief description, and the dollar amount of the items purchased. Here there may also be an auxiliary ledger, called accounts payable. This subsidiary ledger lists all the suppliers to whom the company owes money for the goods or services purchased.
Cash ledgers contain all transactions for activities that use cash. The purpose of this ledger is to help a business reconcile its bank accounts at the end of the month. In some cases, this general ledger may not be busy during the month given the size and nature of the business. Accountants typically record cash transactions, and may then turn the ledger over to an individual who reconciles the bank account. Separation of duties between cash ledger accountants helps prevent irregularities such as fraud or embezzlement from occurring.
The general ledger is a key element for transactions that do not fall within the purpose of the other ledgers. Accountants often use this ledger as a last resort for business transactions. Logging too many transactions here can result in the loss of information or data that takes some time to analyze when finding information. Accountants often set specific rules for using a ledger.
Smart Asset.
Protect your devices with Threat Protection by NordVPN
