Understanding your organization’s bookkeeping and accounting records will allow you to recognise what has occurred in the past, predict future outcomes and make informed management decisions. The reports supporting high level financial statement analysis will be the foundation of the organizations financial management, the details of which can be found in the company trial balance and general ledger.
The trial balance is a list of accounts with balances that indicate which accounts have debits and which ones have credits and is used to put together the financial statements. The sum of debits should equal the sum of credits on the trial balance. The trial balance may consist of many sub-accounts that are grouped for financial statement presentation.
A general ledger provides the details of how the trial balance accounts arrived at their totals. The general ledger allows for an audit trail that would ideally tie to source documents. For instance, the financial statements may show rent at $64,000 while the trial balance may show rent in one account at $60,000 and rent in another at $4,000. The general ledger for the first account may detail twelve $5,000 entries for rent – each of which can be sourced to a rent agreement and checks paid to a landlord. The general ledger for the second rent account may indicate ten entries of $400 each for a short-term storage facility which can be supported by invoices and credit card payments.
Proper bookkeeping also allows for support in an audit. A properly generated general ledger will make identifying source documents easier and more efficient – keeping the CRA satisfied. Where transactions in an organization are many – it would be prudent to use bookkeeping software for this purpose.
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