General Ledger: Read and Reconstruct the Records

What a General Ledger Records

A general ledger groups postings by account, such as bank, trade creditors or repairs expense. A posting is one debit or credit to an account. A transaction is the underlying event, which can generate several postings. A cash movement is a receipt or payment through a cash account.

A supplier invoice can create an expense and a liability before any payment occurs. Paying that invoice later reduces the liability and bank balance. The expense and the payment therefore belong to different accounting entries.

Journals organise the debit and credit entries that feed the ledger. Account balances then feed the trial balance and, after the required accounting work, the financial statements. Those summaries aggregate account information. They do not preserve each posting’s description or source reference.

The Australian Securities and Investments Commission (ASIC) says companies must keep records that explain their transactions and financial position. Its ASIC’s record-keeping guidance also addresses records needed to prepare and audit financial statements. Reconstructing a ledger establishes a supported account history. An audit or accounting opinion involves a separate professional engagement and its applicable requirements.

Request the Complete Posting History

Request the entity’s full ledger export, its opening balances and the underlying documents together. Confirm your authority to obtain the records and identify the entity before combining files. A group report can hide which company owns a posting.

Ask for these fields where the system retains them.

Obtain the native export as well as readable invoices, statements and schedules. A PDF report alone can omit identifiers or flatten multiple lines into one total. Record filters, excluded accounts and export settings, including whether inactive accounts appear. Ask separately for audit history if the export lacks it.

Preserve the files as received and analyse copies. Record their source, receipt details and export parameters. Keep a file inventory that identifies missing periods and unavailable history fields. Before merging exports, retain the account codes and a documented chart of accounts mapping so a changed name does not split one account into two.

Read the Accounts and Trace an Entry

Trace an entry through its source document, both sides of its posting and the affected balances. The following fictional example covers one company and three accounts over one review period. GST is excluded, and the listed entries are the only movements in those accounts.

Opening bank statement B0 shows $10,000. Supplier schedule S0 supports $2,000 owed to an earlier supplier. Repairs expense starts at zero. Invoice I1 records $1,200 of repair services from a different supplier. Later, bank statement B1, page 2, records payment reference P1 for $1,200 to that supplier.

Fictional Posting Extract

J1 has equal debits and credits of $1,200. J2 also balances at $1,200, while J3 balances at $600. The missing support for J3 remains a problem despite that arithmetic.

Match P1 to invoice I1 through the supplier and payment allocation, not the amount alone. The bank record establishes the payment. The invoice describes the repair services. The ledger records the classification chosen by the person who entered it. Those facts need separate evidence if the classification is disputed.

Trade creditors is a control account: its balance summarises amounts held in the detailed supplier subledger. Read the supplier allocations and outstanding invoices beside it. Other control accounts can depend on customer, payroll or tax subledgers. A bank-account extract cannot establish whether those records or the company’s other accounts are complete.

Detailed testing of authorisation and reversals belongs with the review of journal entries. Retain the identifiers needed to follow that history.

Reconstruct the Supported Posting History

Build a separate evidence schedule that preserves what the ledger says and distinguishes what the source records support. Do not overwrite J3 simply because its invoice is missing.

1. Fix the review boundary. Name the entity, period and accounts, then record which opening balances have support.
2. Preserve the original entries. Give each imported line a stable reference and retain its original identifier.
3. Add source observations separately. Link bank movements and invoices to the original lines without treating a match as a fresh posting.
4. Calculate supported movements. Carry proposed classifications and unresolved items in separate columns or schedules.
5. Compare the resulting account history with the export’s closing balances. Explain each difference before using the totals.

Fictional Reconstruction Evidence

For the bank account, $10,000 opening cash less P1 of $1,200 gives $8,800 closing cash. Creditors supported by S0 and I1 total $3,200 before settlement. Deducting P1 leaves $2,000 owed. Supported repairs expense is $1,200.

The original ledger instead shows creditors of $2,600 and repairs expense of $1,800 because it includes J3. Present both versions, with the $600 difference attributed to that entry. An unsupported entry is unresolved, rather than automatically false.

Check continuity between successive exports and look for omitted periods. For a suspected duplicate import, compare identifiers, source references and both sides of the entry. Two payments of the same amount can be genuine separate events. If opening plus movements fails to reach the exported closing balance, inspect filters and missing lines before proposing a correction.

Keep Reconstruction Limits Visible

A bank-derived transaction schedule supports cash reconstruction, but a complete accrual ledger also records events without a cash movement. The Australian Accounting Standards Board’s accrual-accounting definition distinguishes recognition of events from the timing of their payment.

Unpaid invoices need supplier records. Accrued wages need payroll evidence. Depreciation needs the asset register and the relevant accounting calculation. Stock quantities and cost need inventory records, while opening balances need earlier books and supporting schedules.

Keep a separate list of liabilities found in invoices or supplier statements but absent from the ledger. Record their supporting documents and proposed treatment. A nil bank movement does not establish a nil liability.

Preserve competing classifications where evidence permits more than one explanation. For example, a payment to a supplier could settle an old invoice or pay a deposit for future work. Correct treatment depends on the invoice, allocation and agreement. A statement category alone cannot resolve that distinction.

Where an entity’s account names a related company, retain the posting and its supporting detail for intercompany reconciliation. Keep the other entity’s reciprocal balance outside this reconstruction until its records are examined.

Verify the Reconstructed Ledger

Verify each reconstructed account against the source that can establish its balance. Match cash accounts through bank statement reconciliation, including statement continuity and transfers between supplied accounts. Match control accounts to their detailed subledgers, then trace the resulting account totals into the supplied summary used for financial reporting.

For the fictional example, the bank statement must close at $8,800. The supported creditors balance is $2,000 and supported repairs expense is $1,200. J3 remains visible as the reason each of the latter accounts differs from the original export by $600.

A matched bank balance alongside a different creditors balance directs the next enquiry to supplier records and non-cash postings. A difference arising only after two exports are combined directs attention to overlapping periods and duplicate lines. Record the outcome of that check against the relevant source.

FinTrace saves forensic accountants hours of statement conversion and review by supplying a searchable Excel ledger and a source-cited findings report. Those bank-data outputs give the reconstruction a consolidated cash history, with the supporting PDF filename and page already at hand. The accountant combines that input with the company’s other records to establish the account history.

Exception List for Handover

Attach the source-linked exception list to the reconstructed history. Name the professional responsible for each proposed correction and retain their decision beside the original entry. Use the reconciled totals as the input to financial statement analysis only with unresolved items still visible.