General Ledger (GL) Integration: Process, Benefits, & Best Practices

A general ledger (GL) is a master account of financial transactions in a business. Accountants record a summary of all sub-ledger entries in their respective GLs, which are then used for reconciliation and reporting purposes. At the CFO level, from a strategic point of view, management teams prioritise the effective integration of the General Ledger when implementing automated accounting management systems.

However, the initial setup is complex and painful but is nothing compared to automation's gains in the accounting process.

This article discusses everything one must know about the GL integration process, its benefits and best practices to implement and automate accounting management systems. 

What is General Ledger (GL) Integration?

GL integration is the practice of connecting different sub-ledgers and their journals with the respective GLs for seamless financial transaction data transfer within an organisation.

Effective general ledger integration enhances the accuracy and efficiency of financial data reporting and helps provide a comprehensive understanding of the financial health of an organisation.

Types of GL Integration

GL integration is crucial for the automation of the accounting process. GL integration can be of 4 types based on different ways an accounting process automation software allows integrating data into a general ledger. They are: 

• Database tables: This involves combining data from multiple GL-specific sub-ledgers residing in a single database into one table. Such integration can be difficult for organisations storing data in distributed databases. 
• Application messaging: This is an asynchronous data transfer protocol in which sub-ledgers and journal-specific applications transfer data without requiring confirmation of reception. Combining data from multiple databases is possible, but validation of accurate reception can be an issue. Data transfer happens through a dedicated message broker. 
• Flat file or text file imports: This involves manually importing simple text files or flat files containing sub-ledger entries into a general ledger. 
• XML import over the internet: This API-based synchronous data transfer protocol uses a request-response mechanism. XML import allows data to be auto-synchronised over the HTTP connection in real-time. You can also create offline journal entries and synchronise them later when the internet is available. 

GL integration can also be categorised based on the required level of integration. Some of the standard levels of GL integration are:   

1. There is no link to GL and no distribution report. 
2. No link to GL, but a distribution report is required (allocation of a transaction to multiple GL)
3. Link to GL with every transaction-level detail from sub-ledgers 
4. Link to GL with only subtotal-level summary from sub-ledgers 

GL Integration Process

GL integration for any specific account follows a process in a particular sequence. 

• Step 1 - Specifying parameters for mapping GL with respective sub-ledgers and journals 
• Step 2 - Defining master data, such as account code, account description, and other account attributes, for accurate extraction and loading of financial data to GL specific to the account. 
• Step 3 - Specifying mapping parameters, like department code, company code, currency code, etc., for accurate reporting of financial data following any specific transaction under an account. 
• Step 4 - Extract, transform, and consolidate the extracted transaction data from multiple sub-ledgers and load it into a database specific to a GL. 
• Step 5 - Validation of extracted data, error correction and control for final hand-off for reporting.  

Account Types Required for GL Integration

Organisations can maintain as many GL as they need depending on operational complexities. However, any business must maintain broadly 5 types of general ledgers for 5 different accounts. They are:

• Asset accounts - record financial transaction data related to what a company owns. 
• Liability accounts - record the financial obligation of the company.   
• Equity account: This is the company's ownership structure and reports the residual value if all liabilities are paid off. 
• Income accounts - financial data related to revenue or sales-related transactions are recorded in this account. 
• Expense accounts - record expenses such as payments to suppliers, salaries, rent, and other costs related to business operations. 

Tools and Technologies for GL Integration

For finance leaders to have control over the data, it is important to have the access to the right tools and technologies. Even having all the data in your general ledger, 65% of enterprises struggle with real time insights and are not able to proactively avoid errors. This is because enterprises are not integrating their GLs for ensuring accurate compliance.  

All you need is a technology that can directly stream your general ledger data for tax compliance and make the most out of the recent update like IMS. 

Clear’s unified compliance platform, supercharged by new technology, GL-Stream starts your tax automation directly from General Ledger. With GL-Stream  you can:

1. Easily reconcile revenue general ledger vs Sales Register (SR) to find gaps like deferred revenue, journal vouchers & unbilled revenue.
2. Run reconciliation between GST Purchase Register (PR) and expense ledgers to spot mismatches and report tax liabilities.
3. Automatically extract TDS reversal entries for set-off and accurate TDS return reporting.
4. Tally your books with SR and PR anytime to ensure alignment with your return data and government records.

Best Practices for GL Integration

Actual GL integration sub-processes may vary depending on a company's specific enterprise software and operational complexities. However, irrespective of these differences, every company should follow a set of best practices for accurate and seamless general ledger integration. These standard practices are: 

1. Standardise a chart of accounts. It helps maintain uniformity across operations. 
2. Engage departmental representatives in the process of preparing the chart of accounts. 
3. Establish a uniform coding convention across accounts as per the rules specified in the accounting software.  
4. Leverage automation tools in data extraction, transformation, and consolidation processes. 
5. Ensure regular reconciliation of general ledgers with sub-ledgers and journal entries. 

Benefits of Integrated General Ledger

GL integration is a crucial part of any business for several reasons. Accurate and seamless integration of GLs with respective sub-ledgers and journals offers unique benefits. They are:

• Improved efficiency and productivity in the accounting process by saving time and minimising the manual intervention. 
• Enhanced accuracy and consistent data quality are achieved because of a significant reduction in manual intervention in data extraction, loading, and reporting.
• Better management decisions as seamlessly integrated GL allow real-time visibility of the financial picture of a business. It helps take proactive strategic planning.
• Compliance and reporting become more accurate because of the automated generation of financial reporting per the regulatory requirements.