The biggest issues with money market funds involve impulse buying of stuff you do not need and becoming a target for sales pitches from the sales force that sold you the money market fund. Money market funds can be tapped with checks, credit cards, and online transfers. Impulse buyers may want to avoid the opportunity to make quick purchases. Some brokers who are slightly unscrupulous tell money market fund owners that they should “put their money to work” and that “cash is trash.” Lured by potentially higher returns in stocks and other high-commission, high-spread investments, money market funds are easily and quickly converted. With CDs, you lose your interest if you liquidate before the term. Savings accounts often require several steps to convert into risky investments. Money market funds, particularly those attached to brokerage accounts, can be converted at the click of a mouse. If you are vulnerable to sales pitches or impulse buying, you may not want to own money market funds.

Important as it is, the general ledger doesn’t exist in a vacuum, but interacts rather cleverly with other parts of a company’s accounting system. This occurs through a process called posting.

Posting is simply entering into the G/L a summary of posted directly to the general ledger include returns of merchandise, allowances from a supplier for credit, asset acquisitions, asset sales, investor capital contributions, loan drawdowns, and loans. These are called journal entries.

Transactions transactions recorded in the subledgers or journals, with a reference number. We’ll get further into the entire process later.

Some transactions are posted only to the general ledger and not to the subledgers. These transactions tend to be unusual. But proceed with caution. Items that should be entered in subledgers but are simply posted to the general ledger for the sake of convenience can throw the bookkeeping out of whack and unbalance your balance. That’s an error no accounting system can afford.

The general ledger exists for three main purposes: It serves as a summary of every transaction as recorded in the books of original entry; it’s the source document for all financial reports; and it offers an audit trail for tracking individual transactions, should that become necessary.

As the heart of the company’s financial body, the G/L records all transactions that occur within the company’s business activities. It also functions as the center of the firm’s books of original entry. When individual transactions are recorded anywhere within the subsidiary ledgers (subledgers), such as accounts payable or accounts receivable, they feed up to the G/L. (If a business is relatively small, there may not be any subledgers. However, even if you work in a company with such a simplified accounting system, it’s good to know how a more sophisticated system works.)

But the G/L is not a single document. Its content is augmented by receipts, journal entries, invoices—paperwork known as “source documents” that support the transactions recorded within. They all roll together, in fact, to form the company’s accounting system, with the G/L at its heart.

Why is it important for any manager not responsible for financial matters to understand general ledger processing? Well, why is it important for a salesperson to understand the nature, properties, and construction of the item he or she is selling? Financial management is a crucial part of your position. The more you know about what takes place on the accounting side of the fence, the better off you’ll be.

Henry David Thoreau wasn’t an accountant when he said, “Simplify! Simplify!” but he captured the essence of balance sheet management. Keep it simple at first. Your accounting system will grow as your business grows.

Accrual accounting is used by all businesses of any size because it allows for better cash management, providing a better match between expenses and revenues, whether transactions are for cash or on credit. Without an accrual system, in fact, there’s no need for more complex accounting functions. It’s a way to better match revenues with the means for producing those revenues and gives a clearer picture of the actual profits your company makes.

In cash-based accounting, on the other hand, you record nothing until actual cash has traded hands. Whether you’re purchasing raw materials for manufacture from a vendor or selling finished goods to a distributor, nothing is entered in the ledger without a money transaction attached to it.

In applying the ARTS formula identified earlier—Accurate, Relevant, Timely, and Simple—the accounting function can be a major source of information vital to the success of a business. The discipline of the balance sheet, although it may seem foreign to some, gives it the strength and application to help you master all accounting steps within your business cycle.

One more distinction to understand is the difference between cash basis and accrual basis. The choice depends on the type of business, and we don’t need to enter into the reasons here. What you do need to know is how the basis used by your company affects how financial transactions are handled.

The difference focuses to some degree on the question of cash flow. Accrual accounting, popular with large businesses, records transactions when they are made—regardless of whether any money has changed hands. The company is accruing sales revenue that will be deposited at a future date. The difference is that it is immediately posted to the general ledger. The actual cash is incidental to the accounting procedure under accrual accounting.