How To Prepare A General Ledger

Need to know how to prepare a general ledger? Wondering if you're properly recording your small business expenses and credits? The following advice will help you set up your general ledger sheets properly.

You'll want to start out by dividing your finances into five categories: assets, liabilities, owner's equity, revenue and expenses. You'll want to maintain five different general ledger sheets for these five different categories. You'll also want to maintain one umbrella general ledger sheet that combines all the information from all five general ledger sheets into one master sheet, reflecting the overall financial condition of your business.

On each general ledger sheet, you'll record four different columns of information. These columns will be labeled as "Transaction Description," "Debits," "Credits" and "Balance." You will use the traditional double entry accounting method as you maintain your balance. You can do this via a computer or physical general ledger program. All that matters is you maintain the general ledger sheet at all times and do not fall behind such that you lose track of expenditures or credits. Transaction descriptions always go in the far left column, debits always are entered in the next column, credits always go in the next column and the balance is always recorded in the far right column.

Your general ledger sheet should look like the following:

When you compile your master general ledger sheet, you'll want to use the balances of the other five general ledger sheets to create the master sheet. This will allow you to know where your business' finances are at quickly and easily. General ledger accounting is a simple, straightforward way to maintain your financial records.

If your balance seems off, you'll want to go back and check your math. It's easy to forget to enter a transaction or to double count a transaction. It's also common to transpose numbers while entering them into the calculator; watch carefully for these common accounting mistakes.