4.8. Establishing the General Ledger
4.8.1. Using the General Ledger
If you haven't used a General Ledger before the prospect of learning all the rules may seem daunting, but Equity does most of the hard work for you. On a very basic level, the General Ledger is like a huge cashbook where every business transaction is recorded and can be traced. If this is all new to you, read the Accounting Primer to become more familiar with the terms we use to describe various procedures.
The ideal scenario is that you have an on-the-ball accountant that can produce a Balance Sheet and a Profit/Loss Statement at the click of your fingers. If you have one of these, hang on to them as they are a rare species! If you are like most of us, this will be an impossible feat for your accountant and you will be left waiting for these precious documents while your fingers are itching to start using your new Accounting System. If you have been keeping reasonable records you will be able to start using Equity without the wait, as long as you follow this section through. By reasonable records we mean keeping file cards or ledgers for your debtors and a cashbook for your income and expenses.
The worst case scenario is that all your accounting is in your head - including your bank balance! If this is the case, get your last bank statement, your cheque book and your deposit book. Take a pen and, starting with the first transaction on the bank statement, mark off the cheque butts and deposit slips. When you have finished, all the recent cheque butts and deposit slips that are unmarked haven't yet been presented and are called your unreconciled transactions. Make a list of them - you will need this list when we establish your bank account.
4.8.2. Compulsory Accounts
Equity, to make things easier for you, posts certain transactions to the General Ledger automatically. To do this, there must be accounts to post to. These are called the Compulsory Accounts. To have a look at them select the General Ledger Menu and then the `Compulsory Account Code' option.
Even though you may not use all these accounts, they must be present in your Chart of Accounts. You can re-name or re-number them to suit you but please don't delete them as the program will become confused if it tries to post a transaction to an account that doesn't exist!
If you choose not to use the General Ledger these accounts will handle all automatic transactions for you.
Note : As shipped, the Equity default General Ledger reports have the Compulsory Accounts already entered.
4.8.3. Adding New G/L Accounts
If you are using the General Ledger you will need to add all your expense and revenue accounts, as well as any assets, liabilities and capital listed on your balance sheet from you accountant.
What if you don't have documents from your accountant? Well, a lot depends on what records you have been keeping. If you have a cashbook you can enter all the columns as separate G/L accounts, e.g. electricity, rent, etc. If you keep everything in a shoe box you need to do some sorting and try to come up with categories for all your expenses and revenue.
If you have been using a cashbook with columns then each G/L account is like a column. The great thing is the number of accounts is virtually limitless unlike a book. You can also split your areas of revenue into different accounts so you'll know from what areas your money is coming from.
Adding new accounts to the General Ledger is explained fully in the General Ledger Module section of this manual. Refer to Adding a New Account for detailed instructions.
4.8.4. Opening G/L Balances
If you are starting out from scratch with a new bank account and new business you are one of the lucky ones as you don't need to establish any opening balances and can skip this section.
If, on the other hand, you are transferring information from an existing business you will need to establish balances for all your G/L accounts.
Debtor control and Creditor Control accounts should already have balances as you will have posted to these when you established your debtor and creditor balances. We still have to enter the bank balance, expense and revenue accounts, as well as any assets, liabilities and capital accounts that are on your balance sheet.
4.8.5. Entering your Bank Balance
When you are using Equity you need never be in the dark about your bank balance again! For Equity to do it's job you need to enter your bank balance as it stands on the day you wish to start operating, or thereabouts. This is usually your last job before `going live'.
To do this reconcile your last bank statement and list any unreconciled transactions. By unreconciled transactions we mean any deposits or cheques you have written that don't appear on your bank statement. These unreconciled transactions must be entered into Equity via the Cashbook option.
Select 'Cashbook Transaction Entry' from the General Ledger Menu. You will need to select which type of transaction you are entering from the menu.
We advise you enter all unreconciled cheques first, then any unreconciled deposits. For each transaction you will need to enter the date, who it was made out to or received from, the amount, the cheque number or reference and which account it should be posted to. You can post to multiple accounts if the transaction needs to be broken down. If you need more information refer to Cashbook Transaction Entry in the General Ledger Module section.
When you have entered all unreconciled amounts. You will now need to enter the closing statement balance shown at the bottom of the bank statement. This is done via a Cashbook Journal. If the closing balance is positive, you will need to enter a Journal Debit, if it is negative (in overdraft) you will need to post a Journal Credit. The opposing transaction will be 3010 - Retained Earnings.
Press [F10] to process. There is but one job left to do - select `Reconcile Cashbook / Report' from the General Ledger Menu. Accept `1000' as the bank account. All the transactions you've just posted will appear on a list. Go down to the last one which should be the closing statement amount and press [Tab] to mark it. Press [F10] to reconcile and you don't need a report at this stage. This will establish your next opening statement balance.
We advise you enter all unreconciled cheques first, then any unreconciled deposits. For each transaction you will need to enter the date, who it was made out to or received from, the amount, the cheque number or reference and which account it should be posted to. You can post to multiple accounts if the transaction needs to be broken down. If you need more information refer to Cashbook Transaction Entry in the General Ledger Module section.
When you have entered all unreconciled amounts. You will now need to enter the closing statement balance shown at the bottom of the bank statement. This is done via a Cashbook Journal. If the closing balance is positive, you will need to enter a Journal Debit, if it is negative (in overdraft) you will need to post a Journal Credit. The opposing transaction will be 3010 - Retained Earnings.
Press [F10] to process. There is but one job left to do - select `Reconcile Cashbook / Report' from the General Ledger Menu. Accept `1000' as the bank account. All the transactions you've just posted will appear on a list. Go down to the last one which should be the closing statement amount and press [Tab] to mark it. Press [F10] to reconcile and you don't need a report at this stage. This will establish your next opening statement balance.
To check and make sure everything is in balance select `Reconcile Cashbook / Report' again. The Opening Statement amount displayed on the right hand side of the screen should match the closing statement balance on your last statement. When you receive you next bank statement this amount will be the opening balance shown at the top.
If you have more than one bank account you will need to use the above procedure for all of them.
4.8.6. Establishing Revenue & Expense accounts
If you are starting to use Equity from the beginning of a financial year you only need enter your expense and revenue accounts. You won't need to enter any opening balances as all revenue and expense accounts are cleared at End of Year.
If you are starting mid financial year you have the choice of entering opening balances or not. If you enter them all your reports will reflect the whole year's transactions. If you don't enter revenue and expense opening balances your reports will only reflect transactions entered from the time you started to use Equity.
If you choose to enter the opening revenue and expense balances you will need a list of all your expense (money in) and revenue (money out) categories and the year-to-date balance of each one.
Note : If you have entered any unreconciled cheques or deposits in the previous section these should not be included in the balances as they have already been entered.
We have listed the best way to enter revenue and expense opening balances.
1. Add all the accounts you need into your Chart of Accounts. Remember, revenue accounts begin with a 4 and expense account begin with a 5.
2. Select `Journal Entry' from the General Ledger Menu. An entry screen will be displayed.
The date defaults to the system date - overwrite if necessary. Enter [OBAL] for the reference and `Opening Balance' for the description. You are now ready to start entering balances.
3. Each entry line is one opening balance. Enter an account number or press [F2] to pop-up a list of accounts. You can move the highlight bar and select from this list. You don't need to enter another description, just press [Enter]. The cursor will then be in either the Debit column or the Credit column. Those of you who have read the Accounting Primer chapter will be familiar with these terms.
4. If you are entering a revenue account (4) you will be posting a Credit. If you are entering an expense account (5) you will be posting a Debit. Equity has a neat trick of automatically placing you in the column you need to be in to increase the balance of an account. Another neat trick is that when you have finished entering the line a message will be displayed at the bottom of the screen that tells you whether you have increased or decreased the account as a check.
5. Press [Ins] to add new lines. You can edit lines by pressing [Enter] when the highlight bar is on the line. To delete a line press [Del].
6. When you have finished entering all your expense and revenue balances have a look at the bottom totals. They will probably be unequal. This is because you will have made either a profit or a loss. To post the whole journal you need to have the balances at the bottom equal - i.e. Debits = Credits.
Press [Ins] to add a line and enter [3010] as the account number. This is one of the compulsory accounts and it is called Retained Earnings. Your profit or loss will be entered into this account. The cursor will automatically jump to the Credit column - if you need to enter a debit press [Enter] and the cursor will jump to the debit column. Enter the profit or loss amount.
7. Now your balances should be equal - if they're not your subtraction was wrong on the last entry. Recalculate and change it. When the totals balance press [F10] to process. All the entries will then be posted to the specified accounts and you will be returned to the General Ledger Menu.
If you want to go and have a look at the account balances select `Maintain G/L Accounts' from the General Ledger Menu. Scroll down the list and press [Enter] on an account you just posted to. The balance will be shown on screen.
4.8.7. Entering other Assets, Liabilities and Capital accounts
You have now entered all your revenue and expense account balances, your bank balance, your debtor balance and creditor balance. All that are left are any other assets, liabilities and capital. If you have a Balance Sheet from your accountant this will be easy - just follow the steps outlined in the Revenue/Expense section, posting the difference at the bottom to the 3010 - Retained Earnings account. If you don't have a Balance Sheet grab a pen and list any loans you have (liabilities), and any assets such as furniture, equipment, fittings, etc. These will probably be listed on your last tax return.
Note : You can elect to wait for your accountants figures as you can now start using Equity. The balance sheet figures can be posted via a journal entry at a later date.
When you have posted these last balances you can print a Balance Sheet. Yes - no more waiting for your accountant! Select `G/L Reports Menu' from the General Ledger Menu. Then select `Balance Sheet'. Press [Enter] a couple of times and you will have in your hands your first home-grown Balance Sheet, and the great thing is you can print one off at any time!