Table of Contents
Chart of Accounts
The Chart of Accounts provides a basic overview of the logical structure of the accounting program. One can customize this chart to allow for tracking of different sorts of information.
Introduction to Double Entry Bookkeeping
SQL-Ledger is a double entry system, meaning that every transaction consists of an equal sum of credits and debits (see below). A transaction is said to be balanced when the debits and credits are equal. This is an oversimplification and doesn't cover more complex processes involving closing books properly. In general customers should be referred to their accountants for information beyond the capabilities of the software. This module is just designed to provide enough familiarity with the concepts to be able to have an intelligent conversation with a bookkeeper or accountant who has specific requirements in this regard.
- Assets represent tangible or intangible property or money retained by the company. This includes money owed to the company.
- Liabilities are money that the company owes others.
- Equity is the valuation of the company as a whole. Includes investment capital, and money paid out to owners either as dividends or as withdrawals (for sole proprietorships). Normally one will have at least three equity accounts: One for tracking investment in the business, one for tracking withdrawals or dividends, and one for tracking retained earnings.
- Income accounts track the category of money as it is earned by the business.
- Expense accounts track the category of money flowing out as expenses are accrued.
Debits and Credits
Debits and credits are the basic unit of double-entry bookkeeping. When money is removed from the business by the owners (as an equity payment) that is a debit, while when money is invested in the business, that is a credit. Every other transaction is set to balance these concepts. Therefore asset accounts normally have a debit balance because this allows for the equity account to be debited, while expense accounts normally have a credit balance. If the total debits is not equal to the total credits in the chart of accounts, something is very wrong, and the customer should get technical support immediately.
A few Examples
One might have a business that rents an office space. When rent is due, the accounts payable account would be credited, while the rent expense account would be debited. When this is paid, the accounts payable account would be debited while the asset account would be credited. This may seem backwards, but the result is to reduce by the amount owed for rent the amount that the owners can withdraw from the business as a debit. Let's say the office rent is $300.
- Rent expense account is debited $300
- Accounts Payable is credited $300
- When this is paid, the checking account is credited $300
- And the Accounts Payable is debited $300
Let us say one performs a small consulting project for $600. At the completion of this project, the following transaction would be made:
- Accounts Receivable is debited $600
- Income (Consulting) is credited $600.
Then the customer pays the $600, the following transaction is entered.
- Accounts Receivable is credited $600
- Payments Received is debited $600.
General Guidelines on Numbering Accounts
In general, most drop-down boxes in SQL-Ledger order the accounts by account number. Therefore by setting appropriate account numbers, one can affect the default values. A second consideration is to try to keep things under each heading appropriate tot hat heading. Thus setting an account number for a bank loan account in the assets category is not generally advisable.
These features are listed under System→Chart of Accounts. One can list the accounts and click on the account number to modify them or click on the “add account” option to create new accounts. Headings are just broad categories and do not store values themselves, while accounts are used to store the transactional information. One cannot have an account that is both a summary account (like AR) but also has another function. GIFI is mostly of interest to Canadian customers but it can be used to create reports of account hierarchies.
Listing Account Balances and Transactions
One can list the account balances via the Reports→Chart of Accounts report. Clicking on the account number will provide a ledger for that account.
(First version from: An Introduction to SQL-Ledger by Chris Travers, 2006)