Hence, accounting entry is done concerning business purposes and relates to specific cost centers. The purchases are done for specific business units or cost centers within the organization for different business purposes. Now, the purchases can be done through centralized procurement or decentralized procurement manner. Why is General Ledger important for Accounts Payable System?Ī debit transaction is an outflowing cash for organizational purchases of buying machinery or services incurred from vendors. ![]() This sub-ledgers holds all debit and credit transactions for that specific business unit or Cost Centre. Each Business Unit or cost center also holds a sub-ledger account in the General Ledger of the organization. The general ledger holds all the information for businesses to assess financial health. Every purchase of machinery (Credit to your assets) is a monetary deduction (debit from your cash account). Every credit transaction needs a debit transaction. To put in pure finance terms, a debit is expenses or deductions from your Bank balance, and credit transactions are the incoming money to your bank balance. Every debit transaction is a purchase from your bank account and every credit transaction is salary or amount credited to the Bank Account. To give an analogy, General Ledger is like your Bank Account statement. General Ledger is the backbone for all the transactions in the organization. Let us dive in and understand why “General Ledger” is so critical to an organization. Interestingly, most financial frauds in organizations can be detected with an analysis of General Ledger in organizations. In financial aspects, General Ledger is the backbone of an organization's accounts payable system. Though vitally important in our lives, Finance terms are not given much thought. With virtual meeting rooms, we might even catch up on our sleep. ![]() In meetings, when someone uses the words “Accounting entries”, “Journals”, “Chart of Accounts” “Debit/ Credit” in the same sentence, we curl up our noses, or switch off our brains and enter our dreamlands.
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