What Does Your General Ledger Mean?
Why do you need an accountant? What value is there in worrying about the detail that supports your financial statements?
Too often I encounter entrepreneurs commenting that they have cash flow problems, and they can’t figure out where they are doing wrong. When I ask about their financial statements, they laugh and say, “What are financial statements?”
A good set of financial statements (with the foundation of a correctly reported general ledger) is extremely beneficial when it comes to making timely financial decisions. Always remember that 80% of your profits could be coming from 20% of your business, or maybe even 10%. You may also be overspending and mismanaging funds with no clear evidence to define where it is happening.
The detail that supports your financial statements is collated in the general ledger. If you want to drill down from your balance sheets or income statements, the general ledger is where you will land. The contents of the general ledger provide the applicable detail that defines your financial data flow – all revenues charged, all cash collected, all expenses recorded and paid can be found here (hopefully in the correct account).
The general ledger is constructed by a chart of accounts that clearly identify the substance of each transaction. If your chart of accounts is set up incorrectly or mismanaged, your financial statements will not properly reflect economic reality; this would be similar to playing a golf course with the wrong score card.
Good financial information can assist with many facets of your business. Setting future strategies and making prompt, calculated decisions based on correctly reported operating results is where an accountant can assist a business owner. It all starts, however, with a good chart of accounts and correctly entered data.
That’s where we can help. With Cooper CPA Group, you will have a set of correct financial statements and a CPA who can help navigate you to financial success.
Check out our other blog posts for more details.