Full Form of GL

What is the Full Form of GL?

The full form of GL is General Ledger. It can be defined as the books of accounts that record ledger entries. It provides an extensive and systematic record of all the monetary transactions of an organization that is used in the preparation of financial statements and evaluating the overall financial well-being of an organization by allowing users to look at the broader picture.

Classification

GL can be classified as follows:

Classification-of-GL

You are free to use this image on your website, templates etc, Please provide us with an attribution linkHow to Provide Attribution?Article Link to be Hyperlinked
For eg:
Source: Full Form of GL (wallstreetmojo.com)

  1. Expense ledgers: This type of ledger is used for recording all the expenses incurred by an organization. Rent account, electricity account, etc. are examples of an expense ledger.
  2. Capital ledgers: This type of ledger is used for recording transactions about capital introduced or withdrawn from an organization.
  3. Income ledgers: This type of ledger is used for recording all types of income earned and accrued by an organization. Interest received, sales, etc. are examples of an income ledger.
  4. Liability ledgers: This type of ledger is used for recording all types of debts owed by an organization. Creditors, borrowings, accounts payable, etc. are examples of liability ledgers.
  5. Asset Ledgers: This type of ledger is used for recording all types of asset-related information. Bank, cash, debtors, furniture, machinery accounts, etc. are examples of an asset ledger.

How Does it Work?

The accountants use a general ledger for storing and organizing financial informationOrganizing Financial InformationFinancial Information refers to the summarized data of monetary transactions that is helpful to investors in understanding company’s profitability, their assets, and growth prospects. Financial Data about individuals like past Months Bank Statement, Tax return receipts helps banks to understand customer’s credit quality, repayment capacity etc.read more that is used for the creation of an organization’s financial reports. All financial transactions of an organization are posted to their dedicated sub-ledger accounts. These transactions are then summarized and used for the preparation of a trial balance, which acts as a report for every ledger account’s balance. The accountant then checks the trial balance for identifying if there are any errors and adjusts the same by posting necessary journal entries. The accountant then takes the adjusted trial balanceAdjusted Trial BalanceAdjusted Trial Balance is a statement which incorporates all the relevant adjustments. Although it is not a part of financial statements, the adjusted balances are carried forward in the different reports that form part of financial statements. read more into use for generating the financial reportsFinancial ReportsFinancial Reporting is the process of disclosing all the relevant financial information of a business for a particular accounting period. These reports are used by the stakeholders (investors, creditors/ bankers, public, regulatory agencies, and government) to make investing and other relevant decisions. read more of an organization.

Full-form-of-GL

You are free to use this image on your website, templates etc, Please provide us with an attribution linkHow to Provide Attribution?Article Link to be Hyperlinked
For eg:
Source: Full Form of GL (wallstreetmojo.com)

Example

ABC Limited trades in furniture. It sold ten units of furniture at $200 each to its retailer for cash on 10 January 2020. Post the ledger entries for ABC Limited concerning the above-said transaction.

Answer

General Ledger Example 1

The above-posted entries i.e., cash and sales entries, will be posted to cash and sales account,s respectively. The cash and sales account for ABC Limited are-

General Ledger Example 1-1
General Ledger Example 1-2

Need of GL

It is needed for the following reasons:

  1. It helps in the identification of fraud.
  2. Helps users to minimize or eliminate errors and frauds.
  3. It allows users to immediately stop abnormal transactions.
  4. The general ledger helps the users to complete their trial balance.
  5. It provides an accurate overview of business transactionsBusiness TransactionsA business transaction is the exchange of goods or services for cash with third parties (such as customers, vendors, etc.). The goods involved have monetary and tangible economic value, which may be recorded and presented in the company's financial statements.read more.
  6. General ledgersGeneral LedgersA general ledger is a book of accounts that records the everyday business transactions in separate ledger accounts. The entries made in a ledger can be verified by getting a NIL balance on summing up all the ledger account amounts in the trial balance.read more make filing income tax returns easy for the users since they have expenses incurred, and income earned all in one place.
  7. General ledger allows users to compile their critical financial statements that include an income statement, cash flow statementsCash Flow StatementsStatement of Cash flow is a statement in financial accounting which reports the details about the cash generated and the cash outflow of the company during a particular accounting period under consideration from the different activities i.e., operating activities, investing activities and financing activities.read more, and balance sheets. Thus, aiding in the evaluation of profitabilityProfitabilityProfitability refers to a company's ability to generate revenue and maximize profit above its expenditure and operational costs. It is measured using specific ratios such as gross profit margin, EBITDA, and net profit margin. It aids investors in analyzing the company's performance.read more, liquidity, and financial wellbeing as a whole.

General Ledger vs. General Journal

The difference is as follows:

General-Ledger-vs-Journal

You are free to use this image on your website, templates etc, Please provide us with an attribution linkHow to Provide Attribution?Article Link to be Hyperlinked
For eg:
Source: Full Form of GL (wallstreetmojo.com)

  1. Definition: General ledger can be defined as an account that is used for sorting, storing, and summarizing the financial transactions of an organization, whereas a general journal can be described as a book of accounts that records every financial transaction in chronological order.
  2. Basis of entry: Entries are posted based on the accounts that are affected, whereas in a general ledger entry are posted based on chronological order.
  3. Entry point: A general journalGeneral JournalThe General Journal is a book of entry that holds the initial record of every transaction before being posted to the concerned accounts like Sales Journal, Purchase Journal, & Cash Journal etc. read more is the first entry point, whereas a general ledger is the second entry point in accountancy, for recording a financial transaction;

Advantages

The advantages are as follows:

Disadvantages

The disadvantages are as follows:

Conclusion

Thus General Ledger (GL) enables the users of the financial statementsUsers Of The Financial StatementsFinancial statements prepared by the Companies are used by different categories of individuals and corporates on the basis of their relevancy to the respective parties. The most common users to the financial statements are Management of the Company, Investors, Customers, Competitors, Government and Government Agencies, Employees, Investment Analysts, Lenders, Rating Agency and Suppliers.read more to look at the broader picture. It provides a systematic and meaningful record of all types of financial transactions of an organization that is highly useful in the preparation of financial statements. It allows users to evaluate the financial well-being of an organization. It can be classified as expense ledger, asset ledger, capital ledger, income ledger, and liability ledger.

Recommended Articles

This article has been a guide to the Full form of GL (General Ledger). Here we discuss classification, examples, need, and how does general ledger work along with advantages and disadvantages. You may refer to the following articles to learn more about finance –

Reader Interactions

Leave a Reply

Your email address will not be published. Required fields are marked *