A company’s general ledger function requires a regular review to streamline the number of accounts, store the most current information in readily accessible locations, and contribute to a quick, efficient closing process.
Following are some best practices to ensure your general ledger is presented at optimal efficiency:
1. Eliminate Small-Balance Accounts
Over time, certain general ledger accounts will no longer be used due to the low volume of underlying transactions or the specific purpose for which they were originally designed is no longer in use.
No matter the reason, management’s time is wasted in reviewing and reconciling these accounts on a monthly basis. Instead, we recommend reviewing the general ledger and combining the balance with an account with a larger balance.
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2. Reduce the Number of General Ledger Accounts
The number of general ledger accounts tends to grow over time as business lines, revenue and/or expense categories are added. Having several accounts gives the accounting department too many options to choose from when creating journal entries, which can result in erroneous entries to the wrong accounts.
Additionally, too many accounts make it difficult for management to analyze operations. We recommend merging similar accounts on a periodic basis, as well as determining if that new account will really provide effective information prior to setup.
3. Use of Journal Entries
Allowing multiple people in an accounting department to create and post journal entries can cause confusion and inefficiencies in the review and approval process. We recommend limiting the number of people with access to posting journal entries.
4. Standard Journal Entries
Most general ledger packages allow users to create standard journal entries on a monthly basis to ensure consistency and efficiency. We recommend analyzing your current general ledger package and implementing this feature if currently not in use. Additionally, a standard journal entry checklist for repeated transactions will help ensure consistently reliable financial statements.
5. Reporting Function
Most general ledger packages come with a standard reporting function. For some companies, these “canned” reports provide sufficient information to analyze operations.
For others, the reports generated may provide excess information or not the right information to allow for efficient and effective financial decisions.
An understanding and review of the general ledger’s report-writing functions will allow the accounting department to develop financial reports for management that contain key metrics.