The general ledger is the primary entry point for all of your business’s financial data. As it tracks your assets, equity, liability, revenue, and expenses, the general ledger is the foundation of your business’s accounting and your ability to make data-driven leadership decisions. Any issues or inaccuracies in your general ledger can throw off all of your books. Maintaining a complete, accurate, and up-to-date general ledger is vital to business operations, compliance, financial reporting, performance measurement, and financial health.

In order to maintain a clean general ledger, you must create, implement, and follow sound policies and procedures with regards to general ledger reconciliation. The following general ledger maintenance tips will provide you with basic guidance for establishing and maintaining an accurate, thorough, and compliant general ledger in your business.

5 Steps to Creating and Maintaining a Clean General Ledger

1. Review and Correct Errors Promptly

Several types of clerical errors can occur in your general ledger, including:

• Data Entry Errors – These include mistakes like typos, transposed numbers, incorrect figures, duplicated entries, or even misusing accounting software.
• Errors of Omission – These errors occur when an entire entry is forgotten or when part of a transaction is not recorded.
• Errors of Commission – This type of error happens when a transaction is recorded in an incorrect account, posted to an incorrect ledger, or reversed (for example, recording a debit as a credit or vice versa).
• Accounting Principle Errors – These errors can occur by mistake or when a business lacks a consistent set of bookkeeping and accounting standards and guidelines. This can result in incorrectly applied accounting principles or the improper (or inconsistent) classification of expenses.

Regular review of the general ledger and all associated accounts should be performed to identify and correct errors promptly. Additionally, all related accounts should be routinely reconciled. For example

• Bank reconciliations should be promptly performed when statements are issued.
• Customer and vendor accounts should be reconciled with receivables and payables to ensure proper balances of paid and unpaid transactions.
• For accounts with no external statements (such as internal expense accounts), the account variance (the difference between the beginning and ending balance) should be verified against the listed transactions.

2. Implement Internal Controls

Internal controls (like dual control and separation of duties) will help you catch errors more quickly because multiple individuals will be involved in the account management, transaction recording, and reconciliation processes. These controls, however, are primarily designed to protect your business from internal fraud.

Your business’s bookkeeping and accounting tasks should always be handled by a minimum of three individuals to allow for the proper separation of duties and powers. For example, one individual should receive invoices and write the checks, another person should approve and record the transaction, and a third person should reconcile the accounts. This will help protect your business from internal fraud in addition to external scams, such as fraudulent invoices.

3. Leverage Accounting Software

Accounting software automates many of the manual processes that can make reconciling your general ledger a slow and tedious process. By implementing accounting software and automating bookkeeping processes, you can reduce human error and accelerate account reconciliations while also automating financial reporting. Additionally, many accounting software suites include access controls so that you can limit each employee’s access, features, and capabilities to only that which is necessary for performing their duties.

Accounting software saves time and money while improving financial management.

4. Close Books Monthly

Every business should perform a month-end close. This accounting procedure finalizes all financial activities for the previous month with account reconciliation, financial transaction review, and the generation of financial reports for the period.

Closing the books monthly ensures that your general ledger is well-maintained and error-free. Additionally, when an error is identified, performing routine month-end close limits the amount of transactions one must search to only the previous month, making it much simpler to identify and correct any mistakes.

In addition to keeping your general ledger clean, month-end close simplifies year-end close and tax preparation. It’ll also keep your business compliant and audit-ready.

5. Document Policies and Procedures

Your accounting policies and procedures should be written and documented. This will help to maintain consistent procedures for:

• Recording transactions
• Categorizing expenses
• Recognizing revenue
• Reconciling accounts
• Maintaining compliance
• Ensuring proper internal controls
• Keeping the general ledger clean and accurate

Documented bookkeeping and accounting procedures should outline the systems you use, the accounting method you use, and instructions for using your bookkeeping and accounting software. Additionally, we recommend making an accounting checklist for each complex process, such as month-end close, to ensure that every step of each process is completed.

Standardized bookkeeping and accounting processes are crucial for compliance, and they are also vital to maintaining clear, accurate, and reliable financial records that can be measured, tracked, and compared over time to improve your management decisions. Without standardized processes, looking at each period’s financial reports will be like comparing apples to oranges.

Support Data-Driven Decisions With a Clean General Ledger

By implementing these recommendations — record reviews, error corrections, internal controls, accounting software, routine financial closing, and documented policies and procedures — business leaders can readily access accurate, up-to-date, and reliable financial data for better business leadership and a stronger bottom line.

Break Free From Back-Office Worries With Accounting Freedom

At Accounting Freedom, we specialize in helping business leaders break free from their back offices so that they can focus their energy on running, improving, and growing their businesses. We provide comprehensive bookkeeping and accounting solutions designed to establish bookkeeping best practices that maintain general ledger accuracy, support sound accounting systems, and provide business leaders with the tools they need to make data-driven leadership decisions.

 

We encourage you to learn more about Accounting Freedom’s comprehensive bookkeeping services designed to keep your ledger clean and accurate, or to take action today by booking a consultation with our experts to optimize your accounting processes.