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General Ledger Maintenance: Identifying and Fixing GL Issues
To state the obvious, your general ledger is kind of a big deal. Without the kind of. It collects your transactional data, feeds your reporting, and is the bedrock of your entire accounting function. Therefore, it only makes sense for a company to keep it neat and tidy. If you don’t, that trial balance could get ugly, your financial statements late to the party, and don’t even get us started on your audit.
Unfortunately, general ledger maintenance isn’t always easy and fast, at least without the guidance of some GL superstars. So to help keep your ledger crisp and clean like the hospital corners on your bed – you make your bed before leaving for work, right? – Embark has a few practical insights to share from the frontlines.
Why Is the General Ledger So Important?
General journal, chart of accounts, GL, balance sheet, income statement, statement of cash flows, stakeholders, investors, employees – it’s all one big, interconnected river of data and end users. And as you know, it only takes a single blockage in that river to really do a number on everything downstream.
Obviously, that puts your GL in the thick of it, making it oh-so-much more important than credit balances, debit balances, owner’s equity, and the countless other account balances and line items making up your operations. Therefore, if the chart of accounts represents your company’s circulatory system, then the GL is the blood that makes everything go.
That said, our intention here isn’t to provide insights on specific accounting entries, cash receipts, adjusted trial balances, or any other information on general ledger maintenance readily available in any Accounting 101 textbook. Instead, we’re providing some real-world thoughts and best practices to ensure your GL stays accurate, timely, and reliable throughout the ups and downs of everyday operations and economic fluctuations.
Common Issues in General Ledger Accounts
Every company, industry, and business environment is unique, making the root causes behind tattered bookkeeping somewhat broad in scope and not always easy to diagnose. However, from working with businesses of all shapes and sizes, we’ve identified a few common traits that often accompany trial balances about as reliable as a 1970’s station wagon.
The Downside of Growth
Growth is exhilarating. It’s why people start companies in the first place. Whether an exploding startup with a must-have widget or a grizzled old CPG stalwart, periods of growth shift focus from today’s operations to the shiny road ahead. However, shifting that focus can really gum up your accounting machinery at a time when accurate and prompt books are imperative.
Unfortunately, the accounting function is often neglected during those exciting times, as businesses divert resources to fuel the fire of growth. This notion is especially prevalent in smaller companies that didn’t have much staff to begin with. Ultimately, there just isn’t enough time or people to go around and, as a consequence, even something as important as the general ledger can fall into disarray.
Poor Internal Processes and Controls
We don’t mean to imply that a messy general ledger stems exclusively from growth, although it’s the most common culprit. It can happen to any organization that doesn’t devote sufficient talent, technology, and attention to the accounting function. Sure, private companies are more apt to let their general ledger get tangled up, typically lacking the controls of their public brethren. But even public companies can drop the double-entry bookkeeping ball.
Public or private. Startup or mature business. Excel, QuickBooks, or dedicated software. No matter where you are in the business lifecycle or the accounting system you use, all it takes is a quick, unexpected scolding from an auditor, banker, investor, or some other key stakeholder to snap you back to attention.
The problem with that scenario, of course, is that the damage is often already done by that point. Sure, any clean up of the general ledger and financial reporting remains a priority. However, if it occurs after you’ve already been called out on it, there's a good chance debt covenants, relationships with investors, and several other essential factors to success are suddenly on shaky ground. And that’s just not good.
The bottom line – one of the best places to start when solidifying your general ledger is with your processes and control environment. But that shouldn't be too earth-shattering since effective processes and controls come part and parcel with everything from accounts receivable and accounts payable to year-end reporting. A solid foundation makes the accounting world go ‘round.
Turnover and Lack of Continuity
The accounting function is already prone to high turnover levels, the product of a much larger discussion involving concepts like employee engagement and corporate culture. From a ground-level perspective, however, that turnover can wreak havoc on the many processes feeding into the general ledger.
For instance, a revolving door at the CFO or controller levels can destroy any sense of continuity, something that plays such a vital role in an organization. If a CFO instills new processes and procedures to tackle a particularly messy accounting function, but then heads off to greener pastures, those new processes often fall by the wayside.
To throw salt in the wound, the search for a new CFO can take a good amount of time. In the interim, those accounting issues only get worse, making life especially difficult for the new CFO once they become aware of the situation. The result is a general ledger that’s been left festering for far too long.
Cleaning Up Your General Ledger
As ominous as all of that might sound, fixing a broken general ledger doesn’t necessarily have to be complicated or even difficult. In fact, just a handful of best practices can breathe new life into your GL and forever remove the dunce cap from your haggard trial balance.
What might sound like common sense often goes unaddressed in companies with GL issues. Case in point, something as straightforward as account reconciliation – particularly cash – can resolve many inaccuracies within a general ledger.
It doesn’t matter if you’re a technology startup, a chain of grocery stores, an auto repair shop, or a yoga instructor, cash is still king. Thus, you must always have an accurate measure of your cash, where it’s coming from, what you’re spending it on, and, just as importantly, be able to demonstrate those accurate figures to – once again – your auditors, bankers, investors, and more.
To that point, Embark’s exceptionally handy – and free – account reconciliation template is yours for the taking, customizable for your specific operations and needs. As simple as our template is in both design and function, we’re sure you’ll find it extremely helpful in properly aligning your cash and other balance sheet accounts. That is, unless you want your auditor to be the person to discover your consistently double-paid electricity bill. Because that’s always a hoot.
So you’ve finally gotten tired of having a GL that looks more like a Jackson Pollock than the centerpiece of your accounting. You’ve integrated new processes and controls to get everything under control, and you’re well on your way to a trial balance that doesn’t make a CFO want to hide in the second-floor storage room. We congratulate you on a job well done.
However, depending on the complexity of your adjustments, your path to a cleaner general ledger could be confusing to someone outside the process. It’s just no fun going through all of that work to only leave a zigzagging trail that gets new hires and your auditor lost in the accounting woods. Therefore, documenting everything is of absolute importance, making sure you can justify your balances with support that lets outsiders and noobs get from point A to point B without much head-scratching.
Advice From the Experts
Embark knows your situation could be very different from someone else’s, so always be mindful of the dark and evil forces that might be specific to your accounting department, organization, or even industry. Also, make accounting a priority, and equip it to grow seamlessly with your operations.
Invest in accounting software and other scalable, essential technologies early to keep your GL on the straight and narrow. Embrace transformation and automation to eliminate manual processes prone to delays and errors. And, of course, if all this seems a bit overwhelming, Embark is always ready, willing, and able to transform your general ledger into a point of pride, reliability, and critical business insights.