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general_ledger [2014/12/30 15:00] (current)
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 +====== General Ledger ======
 +===== GL Basics =====
 +
 +The General Ledger is the heart of SQL-Ledger. Indeed, SQL-Ledger is designed to be as close as possible to a software equivalent of a paper-based accounting program (but with no difference between the General Ledger and General Journal).
 +
 +===== GL Basics =====
 +
 +The General Ledger is the heart of SQL-Ledger. Indeed, SQL-Ledger is designed to be as close as possible to a software equivalent of a paper-based accounting program (but with no difference between the General Ledger and General Journal).
 +
 +
 +==== Paper-based accounting systems and the GL ====
 +
 +In order to understand the principle of the General Ledger, one must have a basic understanding of the general process of bookkeeping using double-entry paper-based accounting systems.
 +Normally when a transaction would be recorded, it would first be recorded in the "​General Journal"​ which would contain detailed information about the transaction,​ notes, etc. Then the entries from the General Journal would be transcribed to the General Ledger, where one could keep closer tabs on what was going on in each account.
 +In the general journal, all transactions are listed chronologically with whatever commentary is deemed necessary, while in the general ledger each account has its own page and transactions are recorded in a simple and terse manner. The General Journal is the first place the transaction is recorded and the General Ledger is the last.
 +At the end of the accounting period, the GL transactions would be summarized into a trial balance and this would be used for creating financial statements and closing the books at the end of the year.
 +
 +Double Entry Examples on Paper
 +Let us say that John starts his business with an initial investment of $10,000.
 +This is recorded in the General Journal as follows (in this example, suppose it is page 1):
 +
 +^Date  ^Accounts and Explanation ​    ^Ref ^Debit^ Credit^
 +| March 1| Checking Account  ​    | 1060|10000.00| ​     |
 +|    | John Doe Capital |3011  ​     |    | 10000.00|
 +|     | John Doe began a business with an investment of $10000| |
 +               ​
 +This would then be transcribed into two pages of the General Ledger. The first page might be the Checking Account page:
 +
 +^Date  ^Explanation  ​   ^Ref ^ Debits ^ Date ^  Explanation ^ Ref ^ CREDITS^
 +^| March 1|      | J1 |10000.00| ​     |  |
 +On the John Doe Capital page, we would add a similar entry:
 +^Date  ^Explanation  ​   ^Ref ^ Debits ^ Date ^  Explanation ^ Ref ^ CREDITS^
 +|      | |   ​| ​     |March 1    | |J1| 10000.00|
 +
 +=== The GL in SQL-Ledger===
 +The paper-based accounting procedure works well when one is stuck with paper recording requirements but it has one serious deficiency— all of this transcribing creates an opportunity for errors.
 +Relational databases relieve the need for such transcription as it is possible to store everything physically in a way similar to the way a General Journal is used in the paper-based systems and then present the same information in ways which are more closely related to the General Ledger book.
 +This is the exact way that the General Ledger is used in SQL-Ledger. The actual data is entered and stored as if it was a general journal, and then the data can be presented in any number of different ways.
 +All modules of SQL-Ledger that involve COA accounts store their data in the General Ledger (it is a little more complex than this but this is very close to the actual mechanism).
 +
 +=====Cash Transfer=====
 +The simplest form of GL entry in SQL-Ledger is the Cash->​Transfer screen. This screen shows two transaction lines, and fields for reference, department, description,​ and notes. The field descriptions are as follows:
 +
 +**Reference** refers to the source document for the transfer. One can use transfer sheets, bank receipt numbers, etc for this field.
 +
 +**Description** is optional but really should be filled in. It ought to be a description of the transaction.
 +
 +**Notes** provide supplemental information for the transaction.
 +
 +**FX** indicates whether foreign exchange is a factor in this transaction.
 +
 +**Debit** indicates money going into the asset account.
 +
 +**Credit** indicates money coming out of the asset account.
 +
 +**Source** is the source document for that portion of the transaction.
 +
 +**Memo** lists additional information as necessary
 +
 +**Project** allows you to assign this line to a project.
 +
 +The credit and debit options seem to be the opposite of what one would think o concerning one's bank account. The reason is that credits and debits are recorded so as to balance any money that may be invested in or withdrawn from the business. A debit to an asset account will be credited when money is withdrawn from the business, for example.
 +Also note that in this screen, when an item is updated, it will reduce the number of lines to those already filled in plus an extra line for the new line in the data entry.
 +=====GL Transactions=====
 +The GL Transaction screen (General Ledger-> Add Transaction) is identical to the Cash Transfer screen with the exception that it starts with nine instead of two lines. Otherwise, they are identical.
 +Again, one must be careful with debits and credits. Often it is easy to get confused. It is generally worth while to go back to the principle that one tracks them with regard to their impact on the equity accounts. So expenses are credits because they debit the equity accounts, and income is a debit because it credits the retained earning equity account.
 +=====Payroll as a GL transaction=====
 +Currently payroll must be done as a GL transaction. The attempts to create a payroll system that would ship with SL have largely stalled.
 +Most customers running their businesses will have an idea of how to do this.
 +
 +
 +^ Account ^ Debit  ​   ^ Credit ^ 
 +| 5101 Wages and Salaries| 500|   ​| ​  
 +|2032 Accrued Wages | |450 |  ​
 +| 2033 Fed. Income Tax wthd | |  30 |  ​
 +| 2034 State Inc. Tax. wthd | |  15 |  ​
 +| 2035 Social Security wthd | |  3 |  ​
 +| 2036 Medicare wthd | ​      ​| ​ 2 | 
 +| 2032 Accrued Wages  ​    ​|450| ​  ​|  ​
 +| 1060 Checking Acct              | |450|  ​
 +
 +
 +//Payroll as a GL Transaction (Purely fictitious numbers)
 +//
 +===== Reconciliation =====
 +
 +To reconcile an account (say, when one would get a checking account statement), one would go to cash/​reconciliation,​ and check off the items that have cleared. One can then attempt to determine where any errors lie by comparing the total on the statement with the total that SL generates. This can be done for other accounts too, such as petty cash. (Petty cash denotes a drawer of cash that is used to pay small expenses. When an expense is paid, it is recorded on a slip of paper that is stored for reconciliation purposes.)
 +
 +=====Reports=====
 +The most flexible report in SQL-Ledger is the GL report because it has access to the entire set of financial transactions of a business. Every invoice posted, payment made or received, etc. can be located here.
 +The search criteria include:
 +
 +**Reference** is the invoice number, or other reference number associated with the transaction.
 +
 +**Source** is the field related to the source document number in a payment or other transaction. (Source documents are things like receipts, canceled checks, etc. that can be used to verify the existence and nature of a transaction.)
 +
 +**Memo** relates to the memo field on a payment
 +
 +**Department** can be used to filter results by department.
 +
 +**Account Type** can be used to filter results by type of account (Asset, Liability, etc.)
 +
 +**Description** can be used to filter out by GL description or by customer/​vendor name.
 +
 +The actual format of the report looks more like what one would expect in a paper accounting system'​s general journal than a general ledger per se. A presentation of the data that is more like the paper general ledger is found in the Chart of Accounts report.
 +
 +===== GL as access to almost everything else =====
 +
 +The GL reports can be used to do all manner of things. One can determine, for example, which AP invoice or transaction was paid with a certain check number, which invoice by a specific customer was paid by a specific check number.
 +
 +**Next:** [[:​Recurring Transactions]]
 +
 +//(First version from: An Introduction to SQL-Ledger by Chris Travers, 2006)//
  
general_ledger.txt · Last modified: 2014/12/30 15:00 (external edit)