Manual And Computerized Bookkeeping

To really learn the complete concept of bookkeeping, it is necessary that each student begin with manual processes before graduating to automated accounting programs.

The general ledger is the core of your company's financial records and every transaction flows through the general ledger. Each account of this core is eventually finalized to a Profit and Loss statement or Balance Sheet.

The accounting system will have a number of sub-ledgers for items such as cash, accounts receivable and accounts payable. Every item posted in a sub-ledger necessitates transacting to the general ledger as well.

There are times when items will go directly to the general ledger without any sub-ledger posting. These are primarily transactions that will have no operational sub-ledger such as capital contributions, loan proceeds and proceeds from the sale of an asset. They will be linked to the Balance Sheet but not to the Profit and Loss Statement.

With a computerized accounting program such as Quick Books this process is handled automatically. With a manual system all the sub-ledger items must be added up individually at the end of an accounting period and transferred to the general ledger.

There are two main points to understand when setting up the general ledger. One is their linking to financial reports and the other is establishing opening balances.

We know that the two primary financial documents of a company are their balance sheet and profit and loss statement and both of these are taken directly from the general ledger.

Every company has a chart of accounts which determines the order in which all entries will appear. The general ledger accrues the balances that make up the line items and these are transferred to the profit and loss statement.

The opening balances that are established in the general ledger are made up of the assets and liabilities that the company has acquired in order to start the company.