About the Accounting System

Madhuri Dange

March 25, 2022 11:25

This topic provides information on the following accounting sub-topics:

About the General Ledger Account Structure
About the Chart of Accounts
About Account Numbering Logic
About Ledgers

About the General Ledger Account Structure

Most of today's general ledger packages provide multidimensional account structures. These account structures consist of one or more segments to reflect, at a minimum, the General Ledger (GL) account number plus other numbers that generally reflect Company, Cost Center, Account, Product, Project, and so on.

Account Structure Example

In this example, we can examine a typical accounting structure by breaking out the specific segments of the account number 10-100-1010-550-968 as follows:

Company	Cost Center	Account	Product	Project
10	100	1010	550	968

In this example, the first two digits are the Company segment. If the organization has a multi-entity structure, this segment designates the specific company within the organization. The second set of digits is the Cost Center segment, and the third set of digits is the Account Number, which defines the type of account (such as Cash, Accounts Receivable, and so on). The fourth set of digits is the Product segment — a unique number that defines the product sold/returned/purchase. The final set of digits is the Project Segment.

About the Chart of Accounts

The chart of accounts is a list of all accounts that a business uses, containing both account descriptions and account numbers. An example of such a chart is as follows:

Account Number	Account Title
10-000-1010-000-000	Cash
10-000-1010-000-000	Accounts Receivable
10-000-1010-000-000	Inventory
10-000-2000-000-000	Accounts Payable
10-100-2010-550-900	Unearned Revenue
10-100-2020-550-900	Sales Tax Liability
10-100-4000-550-900	Product Revenue
10-100-5000-550-900	Cost of Goods Sold
10-100-6000-550-900	Returns
10-100-6010-550-900	Discounts

Some accounts such as Cash, Accounts Receivable, and Accounts Payable are used by most businesses in their chart of accounts. However, businesses also quite often make use of other accounts that provide whatever additional financial accounting methods are needed for that specific organization. Due to the wide number of business types in existence, this means that the number of different accounts that can be found in use is almost unlimited. In some companies, slightly different titles may be used for the same revenue, expenses, asset, liability, or owner's equity account.

When implementing Aptify, there are a few types of scenarios that may be encountered with respect to the creation of a chart of accounts:

Implementation Scenario 1: Fully expanded chart of accounts that must be established in Aptify

In the event that an organization has a fully developed chart of accounts, these must be established within Aptify. The organization must then assign these GL Accounts to the appropriate "interface points" in Aptify. These interface points are Product Categories, Products, Payment Types, and possibly Order Levels.

Implementation Scenario 2: Re-design of the chart of accounts structure

In the event that an organization is redesigning the chart of accounts, the first step is to determine what changes are necessary to the GL Accounts already set up within Aptify. Next, any transactions necessary are processed in Aptify and standard debit and credit journal entries are created. The organization must then assign these accounts to the appropriate "interface points" in Aptify. These interface points are Product Categories, Products, Payment Types, and possibly Order Levels.

About Account Numbering Logic

Although different businesses may use different accounts, the numbering schema that are typically used are very standard. A common coding system employed by most businesses is to use a three or four digit code series as follows:

Account Number	Type of Account
1000-1999	Assets
2000-2999	Liabilities
3000-3999	Owner Equity or Fund Balance
4000-4999	Revenue
5000-5999	Expense

About Ledgers

Ledgers are accumulations of records kept for each item that appears in a balance sheet. There are several types of ledgers that may be used within an organization's financial system:

General Ledger
Sub Ledgers
Multi-Company General Ledger

General Ledger

The general ledger (GL) is a formal ledger containing all the financial statement accounts of a business. It contains offsetting debit and credit accounts, the totals of which are proved by a trial balance. The general ledger is the central data store of account-level financial -information.

Sub Ledgers

Sub-ledgers, also known as Journals, generally reflect the detail of transactions that post to a General Ledger. They are defined by the following characteristics:

These ledgers generally store the original transactions, including credit and debit information, and a description of each transaction. These entries are stored in chronological order.
They exist in modules or systems separate from the General Ledger. For example, a company's order entry system is responsible for collecting and organizing data about a company's orders.
Periodically, sub-ledger transactions are summarized to the General Ledger account level and posted to the general ledger.
Each sub-ledger contains a mapping of what General Ledger accounts the transactions are to be assigned to.

In Aptify, all entities that provide transactional data to export to a General Ledger are sub-ledgers to those sets of accounts.

Multi-Company General Ledger

Many general ledgers support multiple companies within an organization through the use of a specific segment or field within the account number. This Company segment is usually a balancing field, meaning that the total of all debits and credits for each company within the organization must balance. This is required since most entities are also legal reporting entities that require a separate set of financial statements. For more information on setting up a multi-entity accounting structure, see Setting Up Multi-Entity Accounting Structures.