What is a ledger?
Every small business has to prepare and maintain a ledger that accounts for your business transactions of the accounting year. The ledger accounts for business transactions and these are maintained and posted using the double entry system. Before creating your ledger, ensure that you have already identified business assets, business expenses as well asliabilities and incomes. Ledger books have columns that account for the four fundamental sections of the ledger: assets, liabilities, expenses and income. Rows can also be labeled on the basis of weeks or months depending on the volume and duration of the transactions.
Do’s and don’ts of maintaining a ledger
Do: Evaluate the adjusting journal ledger entries accounted for in the preceding reconciliation. Validate the entries’ accuracy, review which accounts were affected and assess documentation to support the entry.
Don’t: Do not allow bookkeeping entries to be left unchecked and make necessary changes to address these errors.
Do: CrCreate a list of unusual transactions as well as transactions that do not have supporting documentation for the general ledger accounts being reconciled.
Don’t: Do not have several ledgers maintained by different employees accounting for similar entries. This will further complicate the final accounts instead of streamlining the process.
Do: Examine the general ledger journal for wrong entries. Finances should always be positioned accurately by reducing the posting errors. The ledger reconciliation, when performed on a regular basis, allows the errors to be fixed before they become difficult to distinguish from the correct entries. By reconciliation, we understand that accountants review individual accounts in order to establish that the source documents match the balances shown in each account.
Don’t: Ensure that you do not enter items that should be accounted for in different sections under the Miscellaneous column. If you have, re-enter the same amount in the correct section and ensure that you off set the balance of the entry made in the Miscellaneous column. If the ledger does not add up, don’t be discouraged. Use the trial balance as a tool to track down errors.
These are a few do’s and don’ts that you should follow if you need to maintain a ledger and keep your accounts in order. As a startup, your business should ensure that reconciliation or an audit will not upset your ledger accounts.