Bookkeeping is a critical accounting activity that provides the solid financial foundation on which an organization stands. The correctness and integrity of the financial statements that an organization produces largely depend on the correctness and integrity of its bookkeeping activities. Entry of Journals and review and posting to ledgers are the two core bookkeeping activities. The journals are where all transactions are first recorded on a daily basis. Information from a journal is then posted to the ledgers to update each account. Various accounts in the ledgers are then summarized, tested, and validated, and used for producing financial statements at the end of an accounting period.
This section covers the key accounting skills of recording accounting transactions in a journal and then posting them into subsidiary ledgers and summarizing them to the General Ledger. You'll be guided through examples of appropriate general and special journals entries and you'll learn what we mean by general ledger and subsidiary ledgers with a perspective from automated accounting systems. We will help you understand the fundamentals of an effective automated general ledger system and subsequently explain all the important GL concepts including how to analyze a transaction, record it in the appropriate journal, and then post it to the ledgers.
This will provide learners with the understanding of the key functional areas of any General Ledger System and will be beneficial to any professional working on a project that includes General Ledger. The intended audience for this tutorial is anybody who wants to understand the overview of GL irrespective of his accounting background. For IT professionals this overview lesson relates the GL concepts to automated accounting systems. Anyone either serving in an accounting role, or who just wants to have a working understanding of the accounting and general ledger concepts, irrespective of previous experience in accounting can leverage this section. A lot of concepts will be beneficial for finance experts as this section relates these concepts for an effective and efficient automation. Learner will understand the concept of General Ledger and its role in any automated accounting packages including ERP’s like Oracle and SAP.
The amount of the funds contributed by the owners (the stockholders) added or subtracted by accumulated gains and losses. Equity is the residual value of the business enterprise that belongs to the owners or shareholders.
The amount of funds contributed by outsiders other than owners that are payable to them in future. Liability is an obligation of an entity arising from past transactions or events, the settlement of which may result in the transfer or use of assets, provision of services or other yielding of economic benefits in the future.
Business operations may result in financial benefits or losses that arise as a difference of revenue gained from a business activity and expenses, costs and taxes needed to sustain the business activity. Any resultant profit or loss goes to the business's owner. Funds can be invested by owners or outsiders known as equity & liabilities and can be used to acquire assets to perform business activities. All general ledger accounts can be classified as belonging to either one of these categories – Equity, Liabilities, Assets, Revenue and Expenses. These are the fundamental account types from the perspective of automated accounting systems. Based on this classification, closing balances are never carried forward in automated GL systems for Revenue and Expense Accounts.
In ERP’s each account needs to be classified as belonging to one of these classifications.
General Ledger System Accounts: Automated Accounting Systems are organized set of manual and computerized accounting methods, procedures, and controls to gather, record, classify, analyze, summarize, interpret, and present accurate and timely financial data from computerized systems. For any accounting system to work it needs to understand the distinction between balance sheet and profit and loss items. Automated systems also provide posting of certain special transactions to specified accounts. For these functions to work, seeded accounts types and accounts are defined in the automated systems. These mandatory pre-defined accounts and account types are referred to as “General Ledger System Accounts”.
In this article we will explain the typical accounting cycle that takes place in any automated accounting system. We will understand the perquisites for commencing accounting cycle and the series of steps required to record transactions and convert them into financial reports. This accounting cycle is the standard repetitive process that is undertaken to record and report accounting transactions.
Understand the two common systems of bookkeeping, single and double entry accounting systems. Learner will also understand two most common accounting methods; cash and accrual methods of accounting. This article will help the learner understand the advantages and disadvantages of using each one of them.
This article discusses the concept of accounting calendar and accounting periods. Learn why different companies have different accounting periods. Understand some of the commonly used periods across different organizations and the definition & use of an adjustment period.
Period End Accruals, Receipt Accruals, Paid Time-Off Accruals, AP Accruals, Revenue Based Cost Accruals, Perpetual Accruals, Inventory Accruals, Accruals Write Off, PO Receipt Accrual, Cost Accrual etc. are some of the most complex and generally misconstrued terms in context of general ledger accounting. In this article we will explore what is the concept of accrual and how it impacts general ledger accounting.
Understand the difference between accruals and reversals. Recap the earlier discussion we had on accruals and reversals and see the comparison between these two different but related accounting concepts. Understand how the action of accruing results in reversals subsequently in the accounting cycle.
This article will explain the concept of accrued expenses/accrued liability. Discusses the need to record accrued liabilities and why they require an adjustment entry. Understand the treatment for these entries once the accounting period is closed and learn to differentiate when the commitments become liabilities.
Understand what we mean by the terms accrued revenue, accrued assets and unbilled revenue. Explore the business conditions that require recognition of accrued revenue in the books of accounts and some industries where this practice is prevalent. Finally understand the accounting treatment and how unbilled revenue is different from account receivable.
In this article we will describe how to determine if an account needs adjustment entries due to the application of matching concept.Learner will get a thorough understanding of adjustment process and the nature of the adjustment entries. We will discuss the four types of adjustments resulting from unearned revenue, prepaid expenses, accrued expenses and accrued revenue.
In most of the automated financial systems you can define more than 12 accounting periods in a financial year. This article will explain the concept of adjustment period and the benefits of having adjustment periods. Adjustment periods have their inherent challenges for the users of financial statements and there is a workaround for those who don’t want to use adjustment periods.
Modern automated general ledger systems provide detailed and powerful support for financial reporting and budgeting and can report against multiple legal entities from the single system. These systems offer many advanced functionalities and this article will provide an overview of the some advanced features available in GLs.
Understand what is the meaning of allocation in accounting context and how defining mass allocations simplifies the process of allocating overheads to various accounting segments. Explore types of allocations and see some practical examples of mass allocations in real business situations.
A chart of accounts (COA) is list of the accounts used by a business entity to record and categorize financial transactions. COA have transitioned from the legacy accounts, capturing just the natural account, to modern day multidimensional COA structures capturing all accounting dimensions pertaining to underlying data enabling granular level of reporting. Learn more about role of COA in modern accounting systems.
Modern business organizations are complex, run multiple product and service lines, operate globally, leverage large number of registered legal entities and have varied reporting needs. These complexities create need for advanced general ledger systems providing new functionalities. A discussion on the complexities faced by designers of modern GL systems.
Currency is the generally accepted form of money which is issued by a government and circulated within an economy. Accountants use different terms in context of currency such as functional currency, accounting currency, foreign currency and transactional currency. Are they the same or different and why we have so many terms? Read this article to learn currency concepts.
In this article we explain some commonly used subsidiary ledgers like accounts receivable subsidiary ledger, accounts payable subsidiary ledger or creditors' subsidiary ledger, inventory subsidiary ledger, fixed assets subsidiary ledger, projects subsidiary ledger, work in progress subsidiary ledger and cash receipts or payments subsidiary ledger.
Understand what we mean by GAAP to STAT adjustments. This article discusses the different standards that are used for multiple representations of the financial results for global organizations. Understand the meaning of US GAAP, Local GAAP, STAT, IFRS and STAT. Finally understand why accounting differences arise and how they are adjusted for different financial representations.
Generally Accepted Accounting Principles define the accounting procedures, and understanding them is essential to producing accurate and meaningful records. In this article we emphasize on accounting principles and concepts so that the learner can understand the “why” of accounting which will help you gain an understanding of the full significance of accounting.
General ledger is the central repository of all accounting information in an automated accounting world. Summarized data from various sub-ledgers are posted to GL that eventually helps in creation of financial reports. Read more to understand the role and benefits of an effective general ledger system in automated accounting systems and ERPs.
In this article we will summarize what we have learnt so far in this section and this will serve as a ready reckoner for the learner to recap the key concepts related to general ledger system. Coming directly to this article will be beneficial for learners who want to have a quick overview of general ledger system in the context of ERPs and automated systems.
In this article we will explain the general Ledger journal processing flow from entering journals to running the final financial reports. Understand the generic general ledger process flow as it happens in automated ERP systems. The accounting cycle explains the flow of converting raw accounting data to financial information whereas general ledger process flow explains how journals flow in the system.
In this tutorial, you learn what we mean by drill through functionality in context of general ledger system. We will explain the concept of drill down and how it enables users to perform account and transaction inquiry at a granular level and the benefits of using this functionality.
After reading this article the learner should be able to understand the meaning of intercompany and different types of intercompany transactions that can occur. Understand why intercompany transactions are addressed when preparing consolidated financial statements, differentiate between upstream and downstream intercompany transactions and understand the concept of intercompany reconciliations.
In this article the learner will understand the meaning of journalizing and the steps required to create a journal entry. This article will also discuss the types of journals and will help you understand general journals & special journals. In the end we will explain the impact of automated ERPs on Journalizing Process.
This article explains the process of entering and importing general ledger journals in automated accounting systems. Learn about the basic validations that must happen before the accounting data can be imported from any internal or external sub-system to the general ledger. Finally understand what we mean by importing in detail or in summary.
In this tutorial we will explain what we mean by posting process and what are the major differences between the posting process in the manual accounting system compared to the automated accounting systems and ERPs. This article also explains how posting also happens in subsidiary ledgers and subsequently that information is again posted to the general ledger.
Review and Approval mechanisms ensure that the accounting transaction is reasonable, necessary and comply with applicable policies. Understand why we need review and approval processes, what are they and how they are performed in automated general ledger systems. Learn the benefits of having these mechanisms in place.
Learn the concept of prepaid expenses. Understand the accounting treatment for prepaid expenses. Understand the concept by looking at some practical examples and finally learn the adjusting entry for these expenses. Also look at the accounting entries that will be performed in the ERPs or automated systems.
In the previous article we gained an understanding of the concept of accounting equation. In this article we will focus on how to analyze and recorded transactional accounting information by applying the rule of credit and debit. We will also focus on some efficient methods of recording and analyzing transactions.
Understand the concept of recurring journals and the characteristics of recurring journals. Learn the various methods that can be used to generate recurring journals. See some examples and explore the generic process to create recurring journals in any automated system.
Explore the concept of journal reversals and understand the business scenarios in which users may need to reverse the accounting entries that have been already entered into the system. Understand the common sources of errors resulting in reversal of entries and learn how to correct them. Discuss the reversal of adjustment entries and the reversal functionalities in ERPs.
A reversing entry is a journal entry to “undo” an adjusting entry. When you create a reversing journal entry it nullifies the accounting impact of the original entry. Reversing entries make it easier to record subsequent transactions by eliminating the need for certain compound entries.See an example of reversing journal entry!
For any company that has large number of transactions, putting all the details in the general ledger is not feasible. Hence it needs be supported by one or more subsidiary ledgers that provide details for accounts in the general ledger. Understand the concept of subsidiary ledger, control accounts and advantages of using subsidiary ledgers in accounting process.
In this article we will help you understand the double entry accounting system and state the accounting equation and define each element of the equation. Then we will describe and illustrate how business transactions can be recorded in terms of the resulting change in the elements of the accounting equation.
In this article we will focus on and understand the accounting process which enables accounting system to provide the necessary information to business stakeholders. We will deep dive into each of the steps of accounting and will understand how to identify accounting transactions and the process for recording accounting information and transactions.
In this article we will do a recap of the double entry accounting systems and will learn what we mean by trial balance. Understand the importance of trial balance and why it is balanced. Learn how it is prepared, what the format is, how to analyze trial balance and what the benefits of taking a trial balance are.
Learn the concept of unearned revenue, also known as deferred revenue. Gain an understanding of business scenarios in which organizations need to park their receipts as unearned. Look at some real life examples and understand the accounting treatment for unearned revenue. Finally look at how the concept is treated in the ERPs or automated systems.
The purpose of the general ledger is to sort transaction information into meaningful categories and chart of accounts. The general ledger sorts information from the general journal and converts them into account balances and this process converts data into information, necessary to prepare financial statements. This article explains what general ledger is and some of its major functionalities.
Accounting is a process designed to capture the economic impact of everyday transactions. Each day, many events and activities occur in an entity, these events and activities are in the normal course of business; however each of these events may or may not have an economic impact. Events or activities that have an effect on the accounting equation are accounting events.