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8.1 INTRODUCTION TO
THE GENERAL LEDGER
The General Ledger module is a double entry
accounting software system that follows generally accepted accounting
procedures, GAAP. The chart of accounts
uses account numbers and can be divided up into departments for
reporting
purposes. Because the other accounting modules are integrated
with the general ledger, book keeping is much easier.
Before you can start using the general ledger
module you will need to setup your chart of accounts and if necessary
setup departments.
Proper accounting practice requires a double entry accounting software system. This means that each value input into the system
is a credit to one general ledger account and a debit to another. Since each entry affects two accounts by the same amount,
debiting one and crediting another, the accounts are always in balance. Another way to look at accounting is to view the chart of
accounts as a row of jars lined up along a wall with a label on each jar. The first jar might be labeled "Bank Account". One further
down the line might be labeled "Phone Expenses". If a phone bill is paid the accounting system takes an amount of money out of
the "Bank Account" jar and puts it into the "Phone Expenses" jar. Thus it can be seen that the sum of the credits will always be
equal to the sum of the debits meaning the books will be in balance or the sum of the debits and credits together will be zero.
One might wonder where the money comes from to be transferred between jars.
The point is that the jars (or accounts) start out empty and they stay empty to the extent that the sum of the money in the jars is
always zero. A credit to one account is offset by a debit to another so that we have +1-1=0.
In general
Asset accounts carry a debit balance (+)
Liability accounts and owner's equity accounts carry a credit balance (-)
Revenue accounts carry a credit balance (-)
Expense accounts carry a debit balance (+)
Credits=-Debits
Assets=-(liabilities+owner's equity)
Owner’s equity=capital input+profit
Profit=revenues+expenses
(revenues are negative and expenses are positive)
assets+liabilities+capital input+revenues+expenses=zero
If you are new to financial accounting practices and do not fully understand the concepts that we briefly
described in the above section, we highly recommend receiving help from an accounting professional.
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