General ledger codes track income and expenses in a company’s accounts, with sub-ledgers used to list specific expenses. Accounting laws require zero balances in some countries, with non-cash assets factored in. Companies use codes to track expenses by department, with controls in place to prevent fraud.
General ledger codes are used to identify debits and credits that pass through a company’s general accounts. Laws in many countries require business owners to keep records of business expenses on file for several years, and tax authorities may request copies of these files during audits. General ledger codes allow business owners and auditors to easily track different types of income and expenses.
Many companies track different types of expenses separately, and the details of these expenses are listed in ledgers known as sub-ledgers. Each sub-ledger has an identifying account code. Although there are separate accounts for different types of transactions, credits and debits often go through the company’s main operating account, and all of these charges are itemized in a journal or accounting document known as the general ledger. The ledger codes are used to show which sub ledger the funds went into after clearing through the general account.
Accounting laws in some countries mean that general ledger accounts must have a zero balance at the close of business, as these accounts are transfer accounts and no debit or credit can permanently affect the general ledger account balance. Accountants or bookkeepers balance the ledger by comparing all the debits and credits that went through the account on a particular day. If a debit was used to make a payment from the account, then the accountant must offset that debit with a credit that was used to withdraw money from the sub-ledger. Sometimes general ledger tickets are misplaced or lost, in which case the accountant must audit the accounts to trace the error and then write new transfer tickets using the appropriate general ledger codes to rectify the problem.
In some nations, general ledger records include a list of the company’s non-cash assets, such as property and accounts receivable, as well as cash. Consequently, the account may not have a zero balance due to the value of these assets factored into the equation. However, transactions involving sub-ledger accounts should not affect the overall account balance, as these transactions should involve an offsetting debit and credit.
Major companies typically assign each departmental manager at least one general ledger code that can be used to track expenses incurred by a particular department. Multiple divisions of a company use other general ledger codes because all departments incur certain expenses, such as employee wage codes or paper supplies. Some companies impose strict controls on general ledger code sharing to prevent unscrupulous employees from using codes to embezzle funds. Many companies require at least two employees to sign general ledger tickets and internal audits are regularly scheduled that are designed to prevent and detect fraud.
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