GL coding is the application of general ledger code (GL Code), a string of alphanumeric characters assigned to each financial entry in an organization’s general ledger.
These codes indicate basic information such as a debit or credit by location, or they can provide more specific details about an entry through a GL string – a combination of numbers and groups of numbers that – when applied uniformly – categorize every point of information for an entry.
It’s not! Read on to see how simple GL coding can be – especially when you automate the ledger code process!
Table of contents
What is a General Ledger?
Let’s start with the basics. A general ledger is a simple listing of your actual income and expenses.
A budget lists your expected income and expenses.
A receivables or payables report shows what you owe or are owed.
But a general ledger records transactions only as they happen.
Even if you only have one bank account you use for your business, it’s a good idea to keep a general ledger to spot any mistakes you or your bank might make. Do this by performing a monthly reconciliation – a comparison of your ledger to your bank statement.
But most businesses and organizations have several checking accounts, credit-cards and lines of credit to pay their bills. So a general ledger lets you keep all of your expenses in one document.
What are Ledger Codes?
Ledger codes are numerals you use to designate a payable or receivable by type in a chart of accounts.
Natural Account Numbers
The natural account number is that portion of the ledger string that identifies what the financial activity is in pure accounting terms: revenue, expense, asset, liability, etc.
The simplest way to assign general ledger codes is to start with natural account numbers. Typically a nice round number like 1000. Then you assign each subsequent pure accounting category a numeral that adds one more numeral to the first number. So your first five natural accounts would be 1000, 2000, 3000, 4000 and 5000.
For example, you can assign revenue account numbers in the 1000s and all expenditure in the 2000s. This makes it simple to quickly see all of your revenue and expenditures.
Your chart of accounts categorizes all sorts of categories in your GL with these natural account numbers. The accounts that you list will depend on the nature of your business. For example, a retail business might include an inventory account since inventory is an important form of asset to that business.
Now you can code all activity based on whether it is revenue, expenditures, etc.
Which then allows you to easily report on each category from your general ledger.
Taking GL Coding to the Next Level – GL Segments
In their most basic form GL codes are that simple.
They get more complicated. But that’s a good thing because your GL coding system will grow and shrink to meet your financial reporting needs. The way to do this is segmentation.
A segment is a section of your chart of accounts structure that typically represents an element of your business structure, such as a department, location, branch, region, division, department, or product category.
Each segment is separated from the other segments and can be reported on individually or in combination with other segments.
GL segmentation starts with a complete understanding of what you want to report on based on your organizational structure. It all comes down to financial reporting: decide what do you want to know. Then start tracking by that information.
But be careful! It’s tempting to segment by every possible criteria. But you don’t want ridiculously long GL strings. Stick to what’s important to know. And make them segments that will not change very often.
With these codes in place, you can combine them with your natural account numbers to create a numeric description of ledger entries. And then report on those types of entries.
For example, if your natural account revenue code is 1000, your New England region code is 300, and your widget product line is 500 then:
- 1000-300 represents revenue generated by the New England region.
- 1000-300-500 represents revenue generate by the New England region selling widgets.
And you can do limitless strings of codes. It all depends on how you want to sort, sum, average, or analyze your general ledger entries.
That’s a lot of numbers. But each number is critical to the GL code and the GL string.
The Biggest Pain Point In GL Coding
Given the amount of numbers involved, the most important part of GL coding is accuracy. If you enter a number wrong then your GL will be thrown off. This means that every receipt and payment must be meticulously associated with the correct GL code or string. And that code or string has to be associated with that transaction in the general ledger.
That can be an incredibly time-consuming process. And is prone to human error.
So while GL coding is critical to running a data driven organization, manual GL coding requires massive additional human capital. And even then you’ll never get 100% accuracy.
Can GL Coding be Automated?
Yes, GL coding can be – and SHOULD BE – automated!
Ledger code automation will save your organization an incredible about of time and money. And it will increase the accuracy of ledger coding to 99.9%.
How Does GL Coding Automation Work?
CoreIntegrator solutions, for example, include Smart AP robotic process automation (RPA) that automates GL coding.
Smart AP RPA is a tool that learns how you GL code invoices based on a few “key values”. These key values are indicators to Smart AP. Telling it how you want the data entry completed.
For example, let’s say you always code your invoices based on the vendor. Then vendor is your key field and Smart AP auto-populates your system based on how you GL coded an invoice from that vendor before.
But sometimes your process isn’t quite that simple. Maybe you GL code invoices based on key values that are a combination of fields, such as company name, then vendor as well as the department or facility the invoice should be charged to.
Now you have three key fields. But once you enter those key values, the GL code or string will auto-populate based on how you processed the invoice with those three key values the last time.
Smart AP can also automate GL coding combinations, GL distribution percentages, and other GL coding tasks. It can also automate changes and exceptions.
And Smart AP doesn’t make ‘fat finger’ mistakes. Once it has learned how to code based on key values, it codes correctly every single time!
Beyond GL Coding Automation
But end-to-end procure to pay automation does so much more than just automated general ledger coding.
- Automated Verified Invoice Data Capture
- Invoice Fraud Protection
- Automated Invoice Approvals
- Automated ePayments
- Much, Much More!
Bottom Line – What is GL Coding and How to Automate It
GL coding is simple once you understand the basics of what a general ledger is and how you want to keep track of your GL categories.
But ledger coding requires meticulous, careful, and time-consuming manual entry.
So why not let AP automation can do that coding and entry for you?
CoreIntegrator Smart AP robotic process automation is built into CoreIntegrator AP automation solutions providing dynamic and intelligent automated GL coding.
And the Smart AP automation technology is fully customizable to your AP processes based on any variable you choose including vendor, company, department, GL code (and many more). Or even any combination of those variables!
Smart AP is GL coding automation that just works!