Chapter Three Setting up General Ledger

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1 Chapter Three Setting up General Ledger How to Restore Your Back up File: Click File - Click Restore Click Browse Select Drive Select Folder Select the File Click Open Click Next Tick New Company Click Next Click Finish. Or Click Open Existing Company Button Then select your company name from the list Click OK. Or Select system navigation bar select restore data in the backup and restore data- Click Browse Select Drive Select Folder Select the File Click Open Click Next Tick New Company Click Next Click Finish. General Ledger: The General Ledger stores information relating to all financial activities of your company. All business transactions are eventually posted to the set of accounts that make up the General Ledger. This set of accounts is called the Chart Of Accounts (COA). General Ledger helps us to create the financial statements of the company. It is important for us to set the chart of accounts properly to cover all the accounts needed to create the financial statements of the business. This need to cover the Assets, Liabilities, Equity, Income and Expenditure accounts of the organization. When transactions are posted in Accounts Receivable, Accounts Payable, Inventory, and Payroll, the journals are updated. The journals in turn update the General Ledger. Entries made to the General Journal also update the General Ledger. The interaction between the General Ledger and the other sections in Sage 50 is illustrated below:

2 Accounts Receivab le Accounts Payable Inventory Payroll Journals General Ledger General Journal Entering General Ledger Defaults: Here we need to set the defaults related to the rounding any odd amounts on financial statements. Set Up the Rounding Account From the Maintain menu, select Default Information; then select General Ledger from the submenu.

3 Rounding Account Tab: The Rounding Account is an account in your General Ledger used by Sage 50 to store rounding differences on Financial Statements. This account can be either a balance sheet account or an income statement account. Typically, the Retained Earnings account is used. Class Activity Click Maintain Select Default Information Click General Ledger Select Retained Earning as a rounding account

4 Or Click Option - Select Default Information - Click General Ledger - Select Retained Earning as a rounding account Account Segments Tab: On the Account Segments tab, you can create or change segments for your chart of accounts ID. This will allow you to take full advantage of the masking and filtering features of Sage 50 when you print reports and financial statements. You can use this feature for printing reports that are filtered by department, division, account ID, or any other segment you create. When you initially create your company in New Company Setup, Sage 50 gives you the opportunity to divide your Account ID into segments, but you can do it here as well. If your chart of accounts is already set up and you change the segment structure, Sage 50 will scan your chart of accounts and inform you if any accounts do not fit the new segment structure. You can then print your Chart of Accounts report to identify those accounts. You can segment your chart of accounts ID by creating descriptions, lengths, and separators for up to five segments. Class Activity Select Segment Tab - Type Segment Description (GL Accounts) Type Length (5) - Separator (None) Click OK Account Numbering: Sage 50 allows the use of both numbers and characters in an account numbering system. However, an account numbering system should be established so it can be understood by everyone, from new employees to accountants. In a traditional General Ledger, individual accounts are numbered and placed into ranges similar to those in the following table: Account Range Account Types Cash, Accounts Receivable, Assets Accounts Payable, Liabilities Equity Income Cost of Sales, Expenses Other Income Other Expenses Sage 50 s sample companies use numbering schemes similar to those in the table above.

5 If you choose, not to use a sample chart of accounts, there are a few rules and guidelines that should be followed when an account numbering system is established. 1. Up to 15 alphanumeric characters can be used in an account ID. 2. Asterisks (*), question marks (?), and plus signs (+) cannot be used in an account ID. 3. Leading or trailing spaces are not permitted in an account ID. However, spaces between characters are allowed. 4. Account numbers are sorted alphabetically, with numbers in the account ID sorted before letters. For example, account ID 2 lists after account ID 1000 and before an account ID starting with AR. Account numbers are not case sensitive; therefore, CASH and Cash are the same account ID. 5. There can only be one account assigned an account type of Equity--Retained Earnings. Selecting Account Types: Account types are used to group similar accounts together. They also determine where the accounts will appear on financial statements, and whether the account typically carries a debit or credit balance. Sage 50 has a wide variety of account types available. At the end of the fiscal year, the balances of the Income, Expense, Cost of Sales, and Equity-Gets Closed account types become zero. The net difference of these accounts is added to the Equity-- Retained Earnings account. Accounts Payable Accounts Receivable Accumulated Depreciation Cash Cost of Sales Equity - Doesn t Close (Corporations) Equity - Gets Closed (Proprietorship) Equity - Retained Earnings Expenses Fixed Assets Income Inventory Long Term Liabilities Other Assets Other Current Assets Other Current Liabilities Accounts Payable: This represents balances owed to vendors for goods, supplies, and services purchased on an open account. Accounts payable balances are used in accrual-based accounting, are generally due in 30 or 60 days, and do not bear interest. Select this account type if you are setting up open vendor accounts or credit card (purchase) accounts.

6 Accounts Receivable: This represents amounts owed by customers for items or services sold to them when cash is not received at the time of sale. Typically, accounts receivable balances are recorded on sales invoices that include terms of payment. Accounts receivable are used in accrual-based accounting. Select this account type if you are setting up accrued income that customers owe. Accumulated Depreciation: This is a contra asset account to depreciable (fixed) assets such as buildings, machinery, and equipment. Depreciable basis (expense) is the difference between an asset's cost and its estimated salvage value. Recording depreciation is a way to indicate that assets have declined in service potential. Accumulated depreciation represents total depreciation taken to date on the assets. Select this account type if you are setting up depreciation accounts for known fixed assets. Cash: This represents deposits in banks available for current operations, plus cash on hand consisting of currency, undeposited checks, drafts, and money orders. Select this account type if you are setting up bank checking accounts, petty cash accounts, money market accounts, and certificates of deposit (CDs). Cost of Sales: This represents the known cost to your business for items or services when sold to customers. Cost of sales (also known as cost of goods sold) for inventory items is computed based on inventory costing method (FIFO, LIFO, or Average Cost ). Select this account type if you are setting up cost-of-goods-sold accounts to be used when selling inventory items. Equity - Doesn t Close (Corporations): This represents equity that is carried forward from year to year (like Ordinary shares). Equity is the owner's claim against the assets or the owner's interest in the entity. These accounts are typically found in corporation-type businesses. Select this account type if you are a corporation and want to record Ordinary shares or other equity intended as owner investment. Equity - Gets Closed (Proprietorship): This represents equity that is zeroed out at the end of the fiscal year, with their amounts moved to the retained earnings account. Equity, also known as capital or net worth, are owners' (partners'

7 or stockholders') claims against assets they contributed to the business. Select this account type if your business is a proprietorship and you want to record dividends paid to partners or if you are a corporation and want to record dividends paid to stockholders.

8 Equity - Retained Earnings: This represents the earned capital of the enterprise. Its balance is the cumulative, lifetime earnings of the company that have not been distributed to owners. You can have only one retained earnings account in Sage 50. Expenses: These represent the costs and liabilities incurred to produce revenues. The assets surrendered or consumed when serving customers indicate company expenses. If income exceeds expenses, net income will result. If expenses exceed income, the business is said to be operating at a net loss. Select this account type if you are setting up accounts such as operation expense, supplies expense, salary and wages expense, travel expense, or charity expense. Fixed Assets: These represent property, plant, or equipment assets that are acquired to be used in a business rather than for resale. They are called fixed assets because they are to be used for long periods of time. Select this account type if you are setting up any of the following fixed assets: Land: property, storage space, or parking lots. Buildings: structures in which the business is carried out. Machinery: heavy equipment used to carry out business operations. For example, you may want to set up any of the following: store equipment or fixtures, factory equipment of fixtures, office equipment or fixtures (including computers and furniture), and delivery equipment (including autos, trucks, and vans used primarily in making deliveries to customers). Income: Income (also known as revenue) represents the inflow of assets resulting from the sale of products and services to customers. If income exceeds expenses, net income will result. If expenses exceed income, the business is said to be operating at a net loss. Select this account type if you are setting up sales revenue accounts. It is common practice to create different income accounts for each category of revenue that you want to track (for example, retail income, service income, interest income, and so on). Inventory:

9 This represents the quantity (value) of goods on hand and available for sale at any given time. Inventory is considered to be an asset that is purchased, manufactured (or assembled), and sold to customers for revenue. Select this account type if you are setting up assets that are intended for resale. It is common practice to create different accounts for each category of inventory that you want to track (for example, retail inventory, raw materials inventory, work in progress inventory, finished goods inventory, and so on). Long Term Liabilities: This represents those debts that are not due for a relatively long period of time, usually more than one year. Portions of long-term loans due and notes payable with maturity dates at least one year or more beyond the current balance sheet date are considered to be long-term liabilities. Select this account type if you are setting up long-term liabilities (for example, long-term loans and noncurrent notes payable). Other Assets: This represents those assets that are considered nonworking capital and are not due for a relatively long period of time, usually more than one year. Notes receivable with maturity dates at least one year or more beyond the current balance sheet date are considered to be "noncurrent" assets. Select this account type if you are setting up assets such as deposits, organization costs, amortization expense, noncurrent notes receivable, and so on. Other Current Assets: This represents those assets that are considered nonworking capital and are due within a short period of time, usually less than a year. Prepaid expenses, employee advances, and notes receivable with maturity dates of less than one year of the current balance sheet date are considered to be "current" assets. Select this account type if you are setting up assets such as prepaid expenses, employee advances, and current notes receivable, and so on. Other Current Liabilities: This represents those debts that are due within a short period of time, usually less than a year. The payment of these debts usually requires the use of current assets. Select this account type if you are setting up accrued expenses from a vendor, extended lines of credit, short-term loans, sales tax payables, payroll tax payables, client escrow accounts, suspense (clearing) accounts, and so on. Set Up Your Chart of Accounts for the First Time

10 If you are currently using a manual system for your accounting, there are several things you need to know when you set up a chart of accounts: Determine a conversion date, and gather balances as of that date. You use this information for your beginning balances. If you are setting up a new chart of accounts (instead of copying from one of Sage 50's sample businesses), you need to have all your account numbers and names written down. Have all of your transactions that have occurred after the conversion date ready to enter to bring your accounts up to date. Do one of the followings: To let Sage 50 walk you through the process of setting up your chart of accounts, from the Sage 50 File Menu - select Setup Guide Click Chart of Account Link -Select Add New Account. OR Select the Chart of Accounts option from the Maintain menu bar. Maintain Chart of Accounts Window The Maintain Chart of Accounts window is used to enter new accounts, edit existing accounts, and enter account beginning balances.

11 Fields of interest are described below: Account ID: Identifies the account in the chart of accounts, lookup lists, transactions, and reports. The ID can be up to 15 characters. Description: Enter a description for the account. This description prints on reports and financial statements. Inactive: Select this check box to make the ID inactive. Inactive records are deleted when the purge utility is run, if they have not been used in any transactions in an open fiscal year. Inactive records can be used in transactions, but a message appears, reminding you of the inactive status. Account Type: Select a type from the drop-down list. Accounts are grouped by account type on financial statements. Accounts assigned to the account types of Income, Expenses, Cost of Sales, and Equity etc. Modifying the Chart of Accounts: If you chose to copy a chart of accounts while using the Create a New Company Wizard, you already have a full list of accounts available. This chart contains all the accounts necessary to run a business. However, since all businesses are different, it may be necessary to add, rename, or delete specific accounts in the chart of accounts. In the Maintain Chart of Accounts window, you can add and edit existing accounts or delete accounts that have no activity. You can also enter beginning balances for the accounts. Changing Account Descriptions Some account descriptions need to be changed to match the business needs. Follow these steps to change the descriptions of accounts: Class Activity Select Maintain - Chart of Accounts- Enter or select account from the Account ID lookup list - Change the Description to Bank of Ceylon Account- Click the Save button. Using these steps as a guide, change these account descriptions. Remember to click Save after changing each description: Account ID New Description Donations Miscellanies Expenses Property and Buildings Stated Capital Long Term Bank Loan VAT Control Deleting Accounts

12 Some accounts are not needed, so they can be deleted. Follow these steps to delete accounts: Class Activity Enter account for the Account ID - Click the Delete button - Select Yes to confirm you wants to delete the record. Using these steps as a guide, delete these accounts Account ID Description Auto Expenses Laundry and Cleaning Expenses Loss on NSF Checks Deposits Payroll Checking Account Saving Account Adding Accounts Follow these steps to add accounts: Class Activity Click the New button on the toolbar- Enter the Account ID Enter the Description HNB Account- Select the Account Type Cash - Click Save & New to add the account and clear the fields. Using these steps as a guide, add these accounts. Remember to click Save & New after adding each account: Account ID Description Account Type Peoples Bank Saving Account Cash Internet Expenses Expenses Printing and Copying Expense Expenses How to see the Changes on the Chart of Account Click the Reports icon in the toolbar and- from the drop-down list, select Chart of Accounts. This will open the report on your screen - Select Close to close the report when you are finished.