General ledger management is a process where companies oversee the recording and reporting of financial figures in their accounting books. Different types of management systems may be in place for a company to preserve its financial integrity. A few different general ledger management systems may include financial accounting, internal and external audits, or the segregation of duties. A company’s owner, executives, or chief financial officer may be responsible for setting these guidelines. Failure to properly manage the general ledger can result in poor financial reporting for a company.
Standard financial accounting practices are among the most common methods a company can engage in general ledger management. These practices include the use of ledgers, journals, financial accounts, and other accounting tools. Accountants are responsible to oversee the data recorded into these various accounting tools. At specific times during the months, accountants reconcile and review the accounting books for accuracy, managing the general ledger in a systematic fashion. Supervisors and others perform the final review for this process in a company.
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Internal and external audits are other ways a company can engage in general ledger management. Internal audits require the use of employees not associated with the accounting department to review the accounting books. This allows the company’s upper management to ensure the accountants are properly handling financial transactions. An external audit requires the use of an external accounting firm to review the company’s accounting books to ensure it follows national accounting standards. This ledger management process is for external stakeholders, allowing them to understand how well the company manages financial transactions.
In order to properly ensure the absence of fraud and embezzlement, a company often engages in the segregation of duties. This accounting practice limits the number of accounting duties one individual can complete in the company. General ledger management can involve many different activities, so one individual can attempt to commit fraud and then cover it up. For example, collecting and counting cash, writing and posting deposits, and sending the money to the bank are all common cash management activities. One employee who completes all these activities may have the opportunity to embezzle funds without being noticed.
General ledger management is a process that evolves over time. As a company grows and expands, so will its accounting practices. Companies will need to find new and effective ways to manage daily accounting tasks. Hiring employees and creating accounting manuals are among the most common ways to accomplish this.