General ledger reconciliation is the process of making sure your GL is accurate. You (or your accountant) will check the transactions recorded in your general ledger against primary documents like receipts, tax documents, invoices and other records. You’ll make sure every transaction is accurate and has been correctly recorded as both a credit and debit in the appropriate accounts. For the most part, general ledgers included with accounting software come pre-built with the most common account types (Figure A). Depending on the software and plan, you can also add custom accounts unique to your specific business. Instead of recording manual journal entries and building a general ledger by hand, automate your financial recording processes with accounting software.

Such financial statements help you in knowing the profitability and overall financial position of your business. A complete list of all general ledger accounts that a company uses is contained within the chart of accounts, which is a simple listing of account numbers and account descriptions. The chart is usually organized to show all balance sheet accounts, followed by all income statement accounts.

General ledger transaction example

Whether each adds to or subtracts from an account’s total depends on the type of account. For example, debiting an income account causes it to increase, while the same action on an expense account results in a decrease. Goods-receipt/invoice-receipt accounts can have either a credit or debit balance.

• The trial balance is checked for errors and adjusted by posting additional necessary entries, and then the adjusted trial balance is used to generate the financial statements.
• If you’re ever unsure what a certain code means, you can check back to your chart of accounts.
• The set of 3-financial statements is the backbone of accounting, as discussed in our Accounting Fundamentals Course.
• Here, a Subsidiary Ledger is a ledger recording detailed information of the related Control Account.

A General Ledger (GL) code is a code used to categorize financial transactions for reporting purposes. Depending on the organization’s accounting needs, the GL code structure can be simple or complex. In contrast, the purpose of a nominal ledger account is to identify any changes to specific types of expenses or revenues. The income gl account statement will also account for other expenses, such as selling, general and administrative expenses, depreciation, interest, and income taxes. The difference between these inflows and outflows is the company’s net income for the reporting period. For a large organization, a general ledger can be extremely complicated.

Other types of GL accounts

And by understanding the purpose of a balance sheet in the accounting equation, you can use that information to make even more informed decisions about your business’s future. Further, you also match General Ledger Account balances to the source documents to see if the accounts are accurate. However, with online accounting software like QuickBooks, the General Ledger Reconciliation had become a lot easier. Thus, assets are items of economic value that can be converted into cash or cash equivalents.