Chart of Accounts

Chart of Accounts

The accounting process is centered on the Chart of Accounts. This is accessed from the ‘Accounts’ menu (which is the landing page of the Accounting module). The Chart of Accounts is a list of the Company’s business accounts and their balances. This list gives an overview of the financial standing of the Company (further categorized by Location and Department).

There are nine types of accounts that can be created.

1.      Asset                                (balance sheet account )

2.      Accounts Receivable          (balance sheet account )

3.      Accounts Payable              (balance sheet account )

4.      Liability                              (balance sheet account)

5.      Equity                                (balance sheet account )

6.      Income                               (P&L account )

7.      Miscellaneous Income         (P&L account )

8.      Expense                             (P&L account )

9.      Miscellaneous Expense       (P&L account )

 

Balance sheet accounts: These accounts appear on the balance sheet.

Profit and Loss accounts: These accounts are used to track your income and expense (accrual basis).

 

Balance Sheet Accounts (Double Entry)

ASSETS, LIABILITIES, AND EQUITY

Assets are what you own. Liabilities are what you owe. Equity is what’s left over. It is your net worth.

Assets always equal your liabilities plus equity. If assets are less than liabilities then your equity is negative.

Assets are on the left of the balance sheet; liabilities and equity are on the right. This directly corresponds to debits and credits. Debits mean left; credits mean right.

 

Profit and Loss Accounts (Accrual Basis)

 

Journal Entries

Journal is a record that keeps accounting transactions in chronological order, i.e. as they occur.

 

Assets: As assets are placed on the debit side so initial entry of asset is obviously debited. Increase in asset will be debited and decrease in it will be credited.

Liabilities:  As liabilities are recorded on credit side so initial entries of liabilities are credited. Increase in liabilities will be credited and decrease in it will be debited.

Capital or Owner’s Equity:  As capital is a liability of the business so rule for liability will be applied for it.

Income:  Income and profits result into increase in capital which is liability, and increase in liability is credited thus increase in income will be credited and decrease in income will be debited.

Expenses or Losses:  Expenses result into decrease in capital consequently it is a decrease in liability, thus increase in expenses and losses will be debited and decreases in expenses will be credited.

 

Following are the rules of Debit and Credit

Debit:  Increase in asset, Increase in expenses/losses, Decrease in liabilities, Decrease in capital/ownership, Decrease in revenue/income.

Credit:  Decrease in assets, Decrease in Expenses, Increase in liabilities, Increase in revenue/income, Increase in capital/ownership

Retained Earnings

What Does Retained Earnings Mean?

The percentage of net earnings not paid out as dividends, but retained by the company to be reinvested in its core business or to pay debt. It is recorded under shareholders’ equity on the balance sheet.

The formula calculates retained earnings by adding net income to (or subtracting any net losses from) beginning retained earnings and subtracting any dividends paid to shareholders:

Also known as “retention ratio” or “retained surplus”.

Investopedia explains Retained Earnings

In most cases; companies retain their earnings in order to invest them into areas where the company can create growth opportunities, such as buying new machinery or spending the money on more research and development.

Should a net loss be greater than beginning retained earnings, retained earnings can become negative, creating a deficit.

The retained earnings general ledger account is adjusted every time a journal entry is made to an income or expense account.

 

Setting Up Chart of Accounts

 

Default Accounts* are created when the Company is setup.

*The Default Accounts are created under the Default Location (a default ID of 100 is assigned and can be changed as suitable, the name is entered while setting up the company) and Default Department (a default ID of 100 is assigned and can be changed as suitable, the name is Administrative). The Account Numbers cannot be changed.

Name Type Base Type Loc Code Dept.Code Account Number Series
Accounts Receivable Accounts Receivable Assets 100 100 100-100-1001 1000
Other Current Asset Asset Asset 100 100 100-100-1002 1000
Undeposited Funds Asset Asset 100 100 100-100-1003 1000
Other Current Liability Liability Liability 


 

100 100 100-100-2002 2000
Taxes Payable Liability Liability 100 100 100-100-2003 2000
Payroll Liabilities Liability Liability 100 100 100-100-2004 2000
Accounts Payable Accounts Payable Liability 100 100 100-100-2001 2000
Opening Balance Equity Equity Equity 100 100 100-100-3001 3000
Service/Customer Income Income Income 100 100 100-100-4001 4000
Uncategorized Income Miscellaneous Income Income 100 100 100-100-7001 7000
Payroll Expenses Expense Expense 100 100 100-100-6002 6000
Consulting/Vendor Expenses Expense Expense 100 100 100-100-6001 6000
Uncategorized Expenses Miscellaneous Expense Expense 100 100 100-100-8001 8000

Note: The Bank Accounts and Credit Card Accounts can be created from the Banking section.

 

Transfer Funds

The Transfer Funds link allows you to transfer the funds from one account to another account.

To transfers the funds, do the following:

  1. Click Transfer Funds link in the Accounts home page. The system displays the Transfer Funds screen.
  2. In the Transfer Funds screen, specify the From Account and Payee and To Account andPayee in the fields provided.
  3. Enter the description in the Memo text box and also specify the amount in the Transfer Amount text box.
  4. Once you have specified the above details, click Transfer Funds link. The system transfers the specified amount from the selected accounts.
  5. Click Cancel to cancel the Transfer Funds screen.

 

Manage Classes

Using the Manage Classes feature, you can assign a class to any transaction.

Classes are like having a second chart of accounts which you can apply to transactions whenever you want to group them into categories different from those provided by the Chart of Accounts.

Accounts mostly organize transactions into financial categories-income, expenses, payables, receivables, etc.–but classes let you organize transactions into any categories you want and you have full control over what those categories are.

Classes are most often used for getting management information from your accounting records. Because classes can represent specific areas or subunits of your business rather than just financial and tax categories. So they let you get separate reports about the profitability of those subunits of your business.

You can differentiate the transactions based on class type.

 

Setting Up Classes

To setup classes, do the following:

Click on the Manage Classes link available in the Accounts home page. The system displays the Classes home page.

The Classes screen displays the list of classes that are already created by the user. The details of the classes are displayed under the following columns: Name, Parent, Created By, Created Date, Modified By and Modified Date.

 

I. Creating New Class

To create a new class, do the following:

Click on Create Class link. The system displays the Class Type screen.

In the Class Type screen,

• Enter the class name in the Class Name text box.

• Select the Subclass of check box option and specify the class for which you want to make this class as sub class of the selected class.

• Enter the required description for the class in the Description field.

• Once you have specified the details, click on ‘Save’ to save the new class. A new class is created and displayed in the Classes home page.

• Click on Cancel to cancel the Class Type screen.

 

II. Editing Class

To edit an existing class, do the following:

• Select the required class you wish to edit and double click on it. The system displays the selected class in edit mode.

• Make the required changes and click on Update to save the new changes.

• Click on Cancel to cancel the Class Type screen.

 

III. Deleting Class

To delete a class, do the following:

• Select the required class you wish to delete and click on Delete link available in the Classes home page. The system prompts you for confirmation.

• Click OK to confirm the deletion.

Note:

• A class that doesn’t have any child class will be deleted.

• Classes that are associated with any transactions will not be deleted.


View Accounts Detail

The Accounts home page displays Chart of Accounts (list of active accounts).

The details of the accounts are displayed under the following columns:

  • Name: Displays the name of the account created.
  • Account Number: Displays the Account Number given while creating the account.
  • Parent: Displays the name of the parent account.
  • Type: Displays the type of the account. The Type is a drop-down list containing the following options: Account Payable, Accounts Receivable, Asset, Bank, Credit Card, Equity, Expense, Income, Liability, Miscellaneous Expense and Miscellaneous Income.
  • Location: Displays the name of the location along with location code where the account is being created.
  • Department: Displays the name of the department along with department code under which the account is being created.
  • Balance Total: Displays the total balance amount the account (and sub accounts) currently holds.

 

Assigning Accounts

The accounts are assigned as below:

Accounting Entities – they form the basis for inflow and outflow of money.

Accounting Customers

  • Tax Payable Account
  • Accounts Receivable Account
  • Income Account

Accounting Vendors

General Vendors


    • Accounts Payable Account
    • Expense Account

Consulting Vendors


    • Accounts Payable Account
    • Expense Account

Consultants-1099


    • Income Account
    • Expense Account
    • Account Payable Account

Employees

W2 Employees

  • Income Account
  • Expense Account

C2C Employees

  • Income Account
  • Payroll Expense Account
  • Payroll Liability Account

Company Taxes (Taxes Setup)

  • Tax Payable Account

Bank With Opening Balance

  • Equity Account

 

New (Customer/General Vendor/Consulting Vendor):

Creating a new record will open the screen with the Accounts† set to Default Accounts.

The drop list for each Account contains all the accounts (of that type) under the Default Location-Department and all the accounts (of that type) of all Departments under the selected Location.

* The Location† is set to the default Location when the ‘create new record’ screen opens.

What if:

Q) The User Changes the Location to one other than the default (usually Loc Code: 100) and changes a default Account to one under the new Location. Then the User goes back and changes the Location†.

A) All the Accounts† are set to defaults and an alert is given.

 

† These are found under Billing Information section for Customer/Consulting Vendor.

 

New (Consultants-1099/ W2 Employees/ C2C Employees):

Creating a new record will open the screen with the Accounts (HR Data Compensation) set to Default Accounts.

The drop list for each Account contains all the accounts (of that type) under the Default Location-Department and all the accounts (of that type) of the selected Department-Location.

* The Location/Department is set to the default Location/Department when the ‘create new record’ screen opens.

What if:

Q) The User Changes the Location/Department to one other than the default (usually Loc. Code: 100 & Dep. Code: 100) and changes a default Account to one under the new Location/Department. Then the User goes back and changes the Location/Department.

A) All the Accounts are set to defaults and an alert is given.

 

New (Company Taxes – Taxes Setup):

Creating a new Tax record will open the screen with the Tax Payable Account set to Default Accounts.

The drop list of the Account contains all the accounts (type: Liability) under the Default Location-Department and all the liability accounts of all Departments under the selected Location.

* The Location is set to the default Location when the ‘create new record’ screen opens.

What if:

Q) The User Changes the Location to one other than the default (usually Loc Code: 100) and changes a default Account to one under the new Location. Then the User goes back and changes the Location.

A) The Tax Payable Account is set to default and an alert is given.

 

New (Bank – With Opening Balance):

Creating a new Bank record will open the screen with the Equity Account set to Default Accounts.

The drop list the Account contains all the accounts (type: Equity) under the Default Location-Department and all the equity accounts of the selected Department-Location.

* The Location/Department is set to the default Location/Department when the ‘create new record’ screen opens.

What if:

Q) The User Changes the Location/Department to one other than the default (usually Loc. Code: 100 & Dep. Code: 100) and changes the default Account to one under the new Location/Department. Then the User goes back and changes the Location/Department.

A) The Equity Account is set to default and an alert is given.

 

Edit:

Whenever the Location (or Department where applicable) are changed all the Accounts are set to defaults and an alert is given.

 

Posting Transactions to Accounts

Transactions that affect/alter the Accounts

Customers

  • Deliver Invoices
  • Receive Payments
  • Pay Taxes

Vendors

  • Receive Bills
  • Pay Bills

Employees

  • Run Net Pay
  • Approve Pay stub
  • Pay Liabilities

Accounts

  • Transfer Funds (alias: Use Register/Journal Entry)

Banking

  • Create Bank Account with Opening Balance
  • Make Transactions

Create New Account

You can create a new account using the Create New link in the Accounts home page.

To create a new account, do the following:

Click on ‘Create New’ link. The system displays the New Account screen.


In the above screen:

  1. Select the account type from the Type drop-down list.
  2. Enter the account number in the Account Number text box provided. (Once the record is saved the Account Number cannot be altered)
  3. Enter the account name in the Name text box provided.
  4. Select the location where the account is being created from the Location drop-down list. It contains the list of locations created by the user in HRM – Locations section. Initially, the default location is selected. The user can click on edit list link available beside the Locationdrop-down list to manage the locations.
  5. Select the department for the account from the Department drop-down list. It contains the list of departments created by the user HRM – Departments. Initially, the default department is selected. The user can click on edit list link available beside the Departmentdrop-down list to manage the departments.
  6. Select the sub account for the newly created account from the Sub Account of drop-down list.
  7. All accounts of the selected Type under all Locations and Departments are displayed in this list.
  8. Enter the required description and notes in the fields provided.
  9. Click on “Save” link to create a new account. An account is created and displayed in the Accounts home page.
  10. Click on “Close” link to close the New Account screen.

 

Note:

  • Based on location selected in the Location drop-down list, the respective departments will be displayed in the Department drop-down list. If you change the location for a particular account, then the default departments will be displayed for that account.
  • Default departments will be available for all locations.
  • You cannot create bank accounts from Accounting – Accounts module. But you can view the bank accounts that are created in “Banking” section in Accounts section.
Edit Account

The edit option is a very important feature in Accounts, which allows you to edit existing accounts displayed in the Accounts home page.

To edit an existing account, do the following:

  1. Select the required account you want to edit and click on Edit link available in the Accountshome page. The system refreshes and displays the account record in edit mode.
  2. Make the required changes and click on Update link to save the new changes.

Note: Only Name, Sub Account of, Description and Notes fields are editable. You cannot change the Type of the account.

  1. Click on Close link to close the edit account screen.

 

What if:

Q) Transactions have already been made involving the account being edited, would the changes be reflected in these transactions as well?

A) No. All transactions affecting the account after the updation would have the updated information. The existing transactions would reflect the information that was present at the time the transaction was done.

 

Delete Accounts

To delete an account,

  1. Select the required account and click on Delete link available in the Accounts home page. You are prompted with the following message:

“By deleting Account, Accounts will be set to Default. Are you sure you want to Delete?”

  1. Click on OK to delete the account. All the deleted account(s) will be set to Defaults.

 

Note:

If the accounts are associated with any transactions, then you cannot delete those accounts.

When the user tries to delete any account that is associated with any transaction, then the system displays the following alert message.

“You cannot delete this account as it is associated with other transactions.”


Defining Accounts Register

To view the list of transactions held under each account,

Double click on any account in the Accounts home page to view the transaction history of the corresponding account register.

Note:Each register shows all the transactions of all it’s sub-accounts as well.


Accounts Payable Register

The Accounts Payable Register screen displays the list of transactions held under Accounts Payableaccount.

The details of the accounts payable account are displayed under the following columns as shown in the below table:

Column Name Purpose
Account Name Displays the name of the payable account.
Date Displays the transaction date.
Number Displays Check Number (Type: Pay Bill by check) 


Displays Bill Number (Type: Bill)

Type Displays the type of the payable account. “Pay Bill” or “Bill”
Vendor Displays the name of the vendor for whom the amount is payable.
Description Displays the description entered by the user while generating the Bill or Pay Bill.
Due Date (Due) 


 

 

Displays the due date for pending payments (if due date is past shows the date in red and the pending amount in braces). 


For Bills which are completely paid it shows “PAID”

For Bill Payments it shows the original bill number for which the payment was made. If multiple bills were paid in single transaction then it shows “-Split–”

Billed Shows the amount that was billed
Paid Shows the amount that was paid
Balance Shows the accumulated balance in the account.


Accounts Receivable Register

The Accounts Receivable Register screen displays the list of transactions held under Accounts Receivableaccount.

The details of the accounts receivable account are displayed under the following columns as shown in the below table:

Column Name Purpose
Account Name Displays the name of the receivable account.
Date Displays the transaction date.
Number 


 

Displays Check Number (Type: Receive Payment for receive by check) 


Displays Invoice Number (Type: Invoice)

Type Displays the type of the payable account. “Invoice” or “Received Payment”
Customer Displays the name of the Customer from whom the amount is receivable.
Description 


 

Displays the description entered by the user while creating the Invoice or Receive Payment.
Due Date (Due) 


 

Displays the due date for pending receipts (if due date is past shows the date in red and the pending amount in braces). 


For Invoices for which amount is completely received it shows “PAID”

For Received Payments it shows the original invoice number for which the receipt was done. If multiple invoices were received in single transaction then it  “-Split–”

Amt Chrg Shows the amount that was invoiced
Amt Paid Shows the amount that was received
Balance Shows the accumulated balance in the account.


Bank Register

The Bank Register screen displays the list of transactions held under Bank Account.

The details of bank are displayed under the following columns as shown in the below table:

Column Name Purpose
Account Name Displays the name of the bank account.
Date Displays the date on which the transaction was made.
Type Displays the type of bank account. (Received Payment, Pay Bill etc.)
Payee Displays the name of the payee (for whom the amount is being paid/received).
Description Displays the description entered by the user while making the transaction.
Deposit Displays the amount deposited into the bank account.
Payment Displays the amount paid to the payee.
Balance Displays the balance amount for the bank account.

Remaining Accounts Register

You can refer the BANK Register topic information for the remaining account register for more information. The procedure remains the same as BANK register for all the other remaining accounts.


Refer to the BANK Register topic for more details.