In the manufacturing industry, managing finances accurately and efficiently can be a difficult task. Many SME Indian manufacturers face challenges like handling large transaction data, account reconciliation, and more. If you aren’t fixing these issues, they can lead to financial mismatches, regulatory issues, and affect business growth. A well-maintained general ledger report can help you with all these issues.
By providing a clear and detailed view of your financial status, it helps you in boosting your business growth in many ways. In this blog post, we’ll learn about ledger reports, its benefits and the importance of a general ledger report for a manufacturing company.
What Is A General Ledger?
A general ledger (GL) is a document where your business mentions all the transactions, including procurement expenses, profits, and losses. This document is used to record all types of accounts and balances. The general ledger report takes this data and arranges it in a centralized and meaningful format. It gives you a summary of your business’s financial activities in a particular period of time.
The general ledger for small businesses is important in your double-entry bookkeeping. It helps you make sure that there is a corresponding credit for every debit. It is a systematic approach that lets you maintain the integrity of your company’s financial data. It also helps you with accurate and automated financial reporting and compliance with general ledger accounting standards.
When you look at a general ledger report, you’ll typically find the following five important components:
1. Assets: An asset is an entity that was acquired in the past by the manufacturing company. An entity can include cash, inventory, equipment, buildings, or goodwill. These entities can either be used for your business purposes or be used to gain economic benefits in the future.
2. Liabilities: Liabilities are the entities that are noted on the right side of the ledger. It might include loans, accounts payable, deferred revenues, bonds, warranties, or accrued expenses. Liabilities are the things that you owe or have borrowed.
3. Equity: Equity is the amount of capital that you’ve invested or you own in a company. The evaluation is done based on the difference between assets and liabilities recorded on the company's balance sheet.
4 Expenses: General expenses are the costs that your company incurs on its daily production or workflow operation. These expenses can be found in the SG&A (Selling, General, and Administrative) expenses section of the income statement.
5. Income: The income statement of a company accounts for other expenses such as selling, general, and administrative expenses, income taxes, depreciation, and interests. The difference between these inflows and outflows is considered your manufacturing company’s income.
How Does General Ledger Work?
A general ledger maintains and summarizes all the transactions through a double bookkeeping method. In this method, each transaction affects at least two accounts, where one account is debited and the other is credited. There is a rule in the ledger that states the total debit amount must always be equal to the total credit amount.
Assets = Liabilities + Shareholder’s Equity
This formula is known as the accounting equation and is a mathematical representation of the double-entry system of accounting.
Importance Of General Ledger Report In Business Financial Management
A general ledger is an important part of a company’s financial operations. In a manufacturing company, your accountant will be able to organize the transactional data into assets, liabilities, revenue, expenses, and equity. Your accountant prepares the trial balance after each and every sub-ledger gets closed.
Here are a few factors that make this report important to your business financial management:
- Financial reporting
- Regulatory tax compliance
- Proper budgeting
- Informed decision making
- Audit trails
General Ledger Example
Suppose you run a light switch manufacturing company, and you purchase a consignment of raw materials worth Rs.5,000. The transaction will debit the raw materials expenses account and credit the cash account. All these expenses are then added to the general ledger, updating the balances of both accounts accordingly. The journal entry for the transaction in the General ledger would be:
- Debit: raw material expenses Rs.5,000
- Credit: Cash Rs.5,000
Using all these entities, this report provides you with a comprehensive overview of your company’s finances.
Key Challenges In General Ledger
Every business, company, or industry is unique and has different needs for bookkeeping. Keeping the general ledger with large-scale manufacturing and complex data can sometimes be difficult for manufacturing businesses. From turnover and lack of continuity to cleaning up your ledger, there are certain key challenges that you might face.
Here are some of these challenges:
- Accuracy and data entry errors
- Incorrect account classification and journal entry imbalance
- Timing issues
- Security concerns
- Compliance issues
- Risk of fraud and misuse
- Poor internal processes and controls
- Ledger cleanup
- Financial system integration
Benefits Of Having A General Ledger Report For Your Business
A well-maintained general ledger gives a detailed overview of your finances. Instead of finding a particular payment in the bundle of statements, a general ledger report gives you organized and easy-to-find records. Here are some other benefits of general ledger in manufacturing businesses:
1. Generation Of Financial Statements
The report plays an important role in the generation of financial statements. It is a foundation of income statements, cash-flow statements, and balance sheets. It allows you to easily track your financial performance, including cash flow, profitability, and liquidity.
2. Accuracy In Financial Transactions
It improves accuracy and transparency by putting all the transactions into one centralized report. It helps you minimize the risk of errors, as every entry is documented and traceable. It also provides a detailed overview of your company’s performance and helps in accurate financial reporting and analysis.
3. Effective Fraud Prevention
It plays an important role in checking and preventing fraudulent activities. Using this report, your accountant can easily identify mistakes by employing trial balance and maintaining balanced books.
4. Accurate Insights For Planning And Decision-Making
It stores invaluable data that is important for strategic planning and decision-making. It provides details like revenue streams, expenditure patterns, and your company's financial health. Using these pieces of information, you can improve your company’s budgeting and resource allocation.
5. Ease In Tax Reporting
It includes all of your financial data, including income and expenses, while simplifying your tax calculations. This helps your business comply with tax regulations and manage payments for licensing and insurance.
How Is TranZact Transforming General Ledger Management?
Automating your general ledger management processes can help you comply with accounting regulations. TranZact offers an automated and centralized general ledger report system to help you boost all your financial processes. It also helps you increase accuracy in transactions and provides transparency to stakeholders.
It also provides you the option to create filtered reports by company or by date, or both. Choose TranZact to make sure the accuracy and consistency of your business’s financial records.
With a detailed and centralized general ledger report, you can easily prevent risks of fraud and ease your taxation process. You can also boost your company’s financial transactions and performance with this report. Automation systems like TranZact can help you improve your business’s accounting processes, including general ledger reports, regulatory compliance, and much more.
FAQs
1. What is the purpose of a general ledger in accounting?
A general ledger report is used to keep records of a company’s financial accounts/transactions. All the accounts recorded in a general ledger typically include assets, liabilities, expenses, equity, and income.
2. How does a general ledger report benefit small businesses?
A general ledger report benefits small businesses by helping them to track and manage their financial reporting operations. It includes managing assets, liabilities, equities, expenses, and revenue.
3. Why is financial accuracy crucial for businesses using general ledger reports?
Financial accuracy is important for businesses using general ledger reports as it is a legal requirement. It helps manufacturing companies prevent legal penalties, disputes, and damaged reputations.
4. What are the benefits of using automated general ledger systems?
Here are benefits of using automated general ledger systems in your manufacturing business:
- Time Management
- Higher Productivity
- Easy Taxation Processes
- Fraud Prevention
- Informed Decision Making
- Financial Transparency
5. How does a general ledger report differ from other financial reports?
A general ledger report is a detailed summary of various parts of accounting in your company. It is the source of other financial reports such as profits, losses, and balance sheets. In short, the general ledger report is a more formal way of keeping financial records.
6. What challenges do businesses face in maintaining a general ledger?
Businesses may face several challenges when their bookkeeping is poor and unclear. These general ledger challenges include payroll mistakes, mixed expenses, security issues, fraud, data entry errors, and much more.
7. How does automation improve the efficiency of general ledger management?
Automation improves the efficiency of general ledger management by reducing the risks of errors. It provides accuracy and integrity of your financial data. Reducing the need for manual data entry also reduces human errors and speeds up your financial processes.
8. What are some examples of general ledger software or systems available for businesses?
Some examples of general ledger software or systems available for businesses are as follows:
- Oracle Netsuite ERP
- TranZact
- Tally prime
- Vyapaar
- Odoo
- Procuzy
