Full Form Of GL

The full form of GL is General Ledger. It can be defined as the books of accounts that record ledger entries. It provides an extensive and systematic record of all the monetary transactions of an organization that is used to prepare financial statements and evaluate the overall financial well-being of an organization by allowing users to look at the broader picture.

Thus General Ledger (GL) enables the users of the financial statements to look at the broader picture. It provides a systematic and meaningful record of all types of financial transactions of an organization that is highly useful in preparing financial statements. It allows users to evaluate the financial well-being of an organization. It can be classified as expense ledger, asset ledger, capital ledger, income ledger, and liability ledger.

The full form of GL is general ledger which is the main record kept by businesses regarding various transactions done everyday. It is the technique used in financial accounting that helps in summarising and tracking all the money flowing in and out of the business, which are also important for future reference and audit purpose.

Using the information provided in the general ledger, the financial statements are prepared and based on that the management and various stakeholders of the organization make financial and investment decisions.

The accountants use a general ledger for storing and organizing financial information used to create an organization's financial reports. All financial transactions of an organization are posted to their dedicated sub-ledger accounts. These transactions are then summarized and used to prepare a trial balance, which acts as a report for every ledger account's balance. The accountant then checks the trial balance to identify any errors and adjusts the same by posting necessary journal entries. The accountant then takes the adjusted trial balance into use to generate the financial reports.

The ledger keeps the record of all kinds of transactions, as per the double entry system, which involves recording using two sides of the transaction, a debit and a credit. All caatgories of accounts are recorded in it. A particular structure of recording is followed so that there is uniformity, and it becomes easy for everyone to understand the process.

This process should be done efficiently and thoroughly so that there are minimum errors. It is an important part of the financial reporting process, which helps in effective financial reporting and management.

GL can be classified as follows:

1. Expense ledgers: This type of ledger is used for recording all the expenses incurred by an organization. Rent accounts, electricity accounts, etc., are examples of an expense ledger.
2. Capital ledgers: This type of ledger is used for recording transactions about capital introduced or withdrawn from an organization.
3. Income ledgers: This type of ledger is used for recording all types of income earned and accrued by an organization. Interest received, sales, etc. are examples of an income ledger.
4. Liability ledgers: This type of ledger is used for recording all types of debts owed by an organization. Creditors, borrowings, accounts payable, etc., are examples of liability ledgers.
5. Asset Ledgers: This type of ledger is used for recording all types of asset-related information. Bank, cash, debtors, furniture, machinery accounts, etc., are examples of an asset ledger.

Let us understand the concept with the help of an example.

ABC Limited trades in furniture. It sold ten furniture units at $200 each to its retailer for cash on 10 January 2020. Post the ledger entries for ABC Limited concerning the above-said transaction.

Answer

The above-posted entries, i.e., cash and sales entries, will be posted to cash and sales accounts,respectively. The cash and sales account for ABC Limited are-

It is needed for the following reasons:

1. It helps in the identification of fraud.
2. It helps users to minimize or eliminate errors and frauds.
3. It allows users to stop abnormal transactions immediately.
4. The general ledger helps the users to complete their trial balance.
5. It provides an accurate overview of business transactions.
6. General ledgers make filing income tax returns easy for the users since they have expenses incurred and income earned all in one place.
7. General ledger allows users to compile their critical financial statements, including an income statement, cash flow statements, and balance sheets. Thus, aiding in evaluation of profitability, liquidity, and financial wellbeing as a whole.

The advantages are as follows:

• The general ledger helps in learning the financial well-being of an organization at any point in time.
• It acts as an insight into a company's transaction. A general ledger allows the auditors to take a deep plunge in learning an organization's operations.
• A detailed analysis of general ledgers allows the auditors of an organization to form a deep understanding of the well-being of an organization.
• General ledger facilitates BRS or bank reconciliation statements, too, as all the financial transactions belonging to a particular bank account are recorded in one place.
• The classification factor enables the organization to view its debtor's ledger totals in one go.

The disadvantages are as follows:

• Expensive and Time-Consuming: The general ledger system can be highly expensive and time-consuming. An organization may need to hire accountants to post their transactions to the general ledger. This system involves a lot of labor too. That’s why most small business organizations feel difficulty in opting for and managing the GL system of accounting.
• Prone to Errors: Another disadvantage is that it could be the fact that these are highly prone to fraud and errors. The possibility of committing errors and mistakes is always high in a general ledger.

The difference is as follows:

1. Definition: General ledger can be defined as an account used for sorting, storing, and summarizing the financial transactions of an organization, whereas a general journal can be described as a book of accounts that records every financial transaction in chronological order.
2. Basis of entry: Entries are posted based on the affected accounts, whereas in a general ledger, entries are posted based on chronological order.
3. Entry point: A general journal is the first entry point, whereas a general ledger is the second entry point in accountancy for recording a financial transaction;

This article is a guide to what is the Full form Of GL (General Ledger). We explain its classification, example, need, advantages & disadvantages. You may refer to the following articles to learn more about finance –

• Ledger Balance
• Subsidiary Ledger
• Purchase Ledger
• Sales Ledger Meaning