A general ledger is the complete record of a company’s financial transactions over its lifetime. It is a report that can be generated over any period of time, and contains a wealth of information. The general ledger is my go-to place when I have questions about my company or need further understanding about a particular transaction.
For very large companies, general ledgers are made up of numerous sub ledgers and you have to dig very deep to get to the individual transaction. In smaller companies, like most of yours, the majority of the transactions occurring in your business will be captured individually in your general ledger. It’s a ton of detail but if you know how to dig into it, you can find all kinds of valuable information.
The general ledger is organized into a list of categories called accounts. Each account holds the transactions specific to that category. Transactions are entered into the general ledger with the amount, a reference number (such as an invoice number or check number), a description (usually optional) and date the transaction occurred. That date drives the period in which the transaction gets reported. For example, sales that occur on April 20, 2016, get entered into the general ledger with a transaction date of 4/20/16 and will show up on the income statement in the month of April 2016.
Essential to a good general ledger is the description that accompanies each transaction. Not all software will require a description, but a good accountant will enter one that is detailed enough that the person reading the general ledger knows what happened in the transaction. Here are some examples of transactions with poor descriptions and how they might be improved:
Transaction type Poor description Better description
Vendor invoice Printer Purchase HP6830 all-in-one printer
Bank deposit Sales Cash sales for 4/20/16
Check Repairs Repair leak in employee restroom
Petty cash disbursement Purchase edibles Cash paid for 12 bags of gummies
Most general ledgers may only report a limited description, but you are usually allowed to enter more if required. In addition, most software will allow the reader to drill down into the transaction. For example, if I see a transaction on the general ledger that I question, I can usually double click on the transaction and see the detail. And if my accountant has done a good job, not only would there be a good description, there would be a scan of the transaction document (invoice for example) attached to the transaction. (See documentation blog).
Not everyone is this way, but I enjoy figuring things out on my own. I prefer to find information for myself and not waste my accountant’s time. I can do that when the activity is well documented. Better to have the detail available and the know-how to find it, for me anyway.
I refer often to the story that financial information provides, it’s a recurring theme for me. The general ledger is a more detailed story and is something I review every month without fail. In addition, if it is kept timely (future discussion), you can get immediate information rather than waiting for financial statements to be produced after month end. Learn to use it and you will find it to be a very handy tool for understanding more about your cannabis business.