The General Ledger and Accounting Software

Before we start on the specific elements ofyou have mastered everything else)( Note - the
general ledger software, and where all the piecestrade debtors account is only money that is owed
fit, you need to understand the basics of financialto us as a result of selling goods on account to
statement and how you can read them.There arecustomers of ours. Other monies owed to the
two main parts to your business's financialbusiness such as staff loans etc would be shown
statement -The accounting software will produceseparately. The same with Trade Creditors. This is
a Profit and Loss, which shows your day to daymoney that we owe to people that we purchase
income reflected against your expenses andfrom on an ongoing basis for example - people
therefore shows what your profit, or loss, is.Thethat we buy goods for resale from, telephone
accounting software will also produce a Balanceaccount, petrol account and so on. People that we
Sheet, which shows your business assets againstowe money to on a longer term basis i.e. a bank
liabilities and the accumulated earnings of yourloan are shown separately)Regarding the bank
business over the years.Lets first look at howaccount - assuming that your bank account
these reports are arrived at -You must firstmostly has money in it, and, therefore, it falls
understand, or accept the first main principle ofunder Assets (the money is an asset belonging to
double entry bookkeeping before we start andyour business). If the account is mostly in
that is -For every entry made there must be anoverdraft then typically it would fall under the
equal and opposite entry made somewhere elseLiabilities section (the money is a loan from the
and when you have finished making your entriesbank and a business liability).If it fluctuates
they must all add up to zero. Don't worry mostbetween the two simply pick where it mostly is.
accounting software packages will make most ofIt's not a major issue. Let's say for example you
these day to day entries for you.Sounds weird -put it under assets and then it went into
not really. The whole principal is logical and goesoverdraft all that would happen is that it would be
back to the days when all books where doneshown with brackets around it.Things to regularly
manually, because accounting software didn'tcheck -(like at least once a month - more when
exist, and by making all of the entries add up toyou are starting out and going through the
zero we knew we had correctly entered ourlearning curve) -Your customer's age trial balance
numbers. We may not have entered them into(a list of how much your customers owe you
the right slot but at least we had created thefrom the receivables module) must always equal
basis of being on the right track. And even thoughthe Trade Debtors account in the Ledger.Logical
your accounting software will, in most cases,isn't it when you think about it. The Receivables
make most of the entries for you, you mustmodule is telling us that the customers owe x
understand the principle behind it.Even if you enteramount of money. This amount must be the
something in the wrong 'slot' it is nearly always asame as the Ledger is telling us that the
simple process to move it where it should be latercustomers owe.Your suppliers age trial balance (a
on.A Profit and Loss report has five mainlist of how much you owe your suppliers from
elementsIncomethe Payables module) must always equal the
Cost of SalesTrade Creditors account in the LedgerYour Stock
Gross ProfitValue report from the Products module should
Expensesalways equal the Stock on Hand account in the
Net Profit (or loss) - sometimes called theLedgerYour bank statement should regularly be
Bottom LineThe Net Profit line is also known asreconciled back to the balance that the Bank
The Bottom Line. You sometimes hear theaccount shows in the ledger.Why should you
expression that if we did this or that it would gocheck these balances regularly - because things
straight to the bottom line. In plain talk what thiscan go wrong and if you only pick it up several
expression means is that, say for example, wemonths later you are only making it harder for
were able to do away with motor expenses inyourself to find out why they don't balance. At
the above Profit and Loss report and incurred noleast if you do it often you may remember if
other alternative expense in its place then thesomething unusual happened.If you find something
$3000.00 motor expenses would go straight todoesn't balance - find out why as soon as possible
the bottom line and increase our net profit byand fix it. If you need help get it - ask your
$3000.00A balance sheet, in very simplistic terms,accountant, software trainer or some other
has two main elements -Assetsknowledgeable personI have been involved in all
Liabilities(please note that assets and liabilities areaspects of the accounting software industry for
nearly always broken up into sub sections -over 20 years. I run several websites that
typically those that are current - within 1 year -specialize in various subjects including that gives
and those that are not current - longer than aadvice on all aspects of accounting software from
year - we are not going into that depth - leavechoosing, setting up and using it.
that to your accountant and worry about it when