In accounting, a general ledger (GL) is a chronological record of all of an organization’s financial transactions. Depreciation, accounts payable, taxes, other liabilities, assets, membership dues, other income, costs, and owner’s equity are all included in this category.
Basically, it’s a record of all of your company’s financial planning information. For non-profit financial statements such as the statement of financial position and the statement of activities, general ledger information is utilized. The GL is a financial statement that provides an in-depth look into your company’s cash flow. It is common for the GL to contain additional information about each transaction, such as the date, amount, and a brief explanation of what the transaction was.
Your Nonprofit’s General Ledger’s Purpose?
Before diving into the importance of a general ledger in nonprofit accounting, let’s take a look at some of the basics.
Is It Necessary to have a General Ledger?
According to the brief answer: Definitely. Your financial statements are audited based on the information in your general ledger, even though it’s not on the IRS’s list of criteria.
Who is Responsible for the General Ledger’s Management?
General ledgers often have specific employees responsible for maintaining their accuracy. Depending on the company, this might be a bookkeeper or accountant. It’s possible that in a bigger, more complicated organization, all of these roles are combined.
A small organization might benefit from having a bookkeeper or treasurer on staff. As long as the accounts are relatively simple (no usage of fund accounting, for example), a person who can merely enter the data into accounting software may suffice. A public accounting company may be hired by smaller firms to do this work.
Depending on the size of the business and its financial demands, a staff accountant or CPA may be employed. A staff accountant may be either a college graduate with an accounting degree or even a well-trained employee without formal accounting experience. If you’re looking for a CPA, you’ll need to get your Master’s in Finance and get your certification in Public Accounting.
The finance department is generally headed by a senior manager in big corporations. This manager will be responsible for overseeing all aspects of the company’s operations, and will usually be in charge of an accountant or a team of accountants. They’ll play a bigger role in the nonprofit’s financial planning and forecasting.
How Can a General Ledger Help Your Non-Profit Organization?
A charity may benefit from having a General Ledger because it provides a clear picture of the financial health of the organization. Important decisions, such as staff salaries, fundraising opportunities, budget changes associated with grants and other revenue sources, the needs of specific funds, pricing of materials, contribution revenues, and have at hand any number of financial statistics, can be made by looking at the information in the ledger.
Throughout the year, the ledger is maintained so that it may be accessed at any time. Members and leaders may benefit from working together to make crucial choices, and it’s also essential for the organization to be transparent about them. Nonprofits are subject to periodic audits, but there may be other interested parties that wish to know more about your organization’s finances. Having well-maintained general ledger templates means that your charity is ready to respond to any demands for information. You don’t want to be taken by surprise. With correct attention, you can shorten the time it takes to answer requests for information and help you maintain your tax-exempt status!
The Fundamentals of Accounting
Since owners’ equity is not often relevant, the fundamental accounting equation “assets equal liabilities + owners’ equity” must be changed in the case of a nonprofit corporation. As a result, the fundamental equation is assets = liabilities plus net assets. When this equation is correctly figured out, it works out. Furthermore, this information is included in the financial statement or financial report of an entity by way of a balance sheet. The basic accounting cycle is used to record transactions over the course of a year by a nonprofit organization to collect this data. The general ledger is a key record in this cycle.
Accounts Payable, Accounts Receivable, and Accounts Receivable
Accounts for all the company’s financial transactions are kept in a general ledger. A chart of accounts is used to facilitate the recording and transmission of relevant data. Using a graphic like this may help a company better monitor and categorize the many transactions it does throughout the year. As a result, the organization is better able to prepare accurate reports for internal use and for sharing with existing and prospective contributors. Numbering the accounts in the chart makes data input and analysis faster, even for tiny non-profit organizations.
Types of Nonprofit Organizational Accounts
Expenses and rewards are paid and contributions are collected in many non-profit organizations. This necessitates the creation of multiple kinds of general ledger accounts. There are a number of accounts that are considered fundamental, including assets, liabilities, revenues, and costs. In the general ledger, these categories may be further split to offer more specific information.
An Easy-to-Use General Ledger
First, assets are defined as cash and receivables. Accounts payable, accruing costs, and delayed income is examples of liabilities. To keep things simple, a small charity may utilize a general ledger with no more than six columns: one for dates, another for descriptions, a third and a fourth for debits and credits, and a fifth and sixth for adjusting the total balance to the debit or credit of the account.
Keeping a Log of All of Your Transactions
Larger charitable organizations may need to keep subsidiary accounts as part of the general ledger to make them more accessible. Purchasing postal or printing services, for example, might be included in a subcategory of expenditures. Rent, utilities, and administration fees are examples of extra subsidiary expenditure categories that a nonprofit may include in the main ledger of the organization.
Purchase of supplies results in an increase in the expenditure account and a drop in cash. Using double-entry accounting, general ledgers record all transactions with a debit and a credit to two separate accounts.
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