Before you start with the specific features of the general ledger software, and where all the pieces fit, you need to understand the basics of the financial statement and how you can read them.
The financial statement of your business has two main parts –
Accounting software will generate profits and losses so that your daily income is reflected against your expenses, which shows what your profit or loss is.
The accounting software will also produce a balance sheet that will show your business assets against your liabilities and cumulative earnings over the years.
First let’s see how these reports come about –
Before we begin, you must first understand or accept the first key principle of double entry bookkeeping –
Double Entry system
Each entry should have the same or opposite access elsewhere, and when you finish your entries, you should add them all up to zero. Don’t worry most accounting software packages will do most of these everyday entries for you.
Sounds weird – not really. The entire Principal is logical and since the accounting software does not exist and the addition of all entries to zero we know that we have entered our figures correctly, all the books go back to the manual date. We may not have entered them in the right direction, but at least we have built the right path. Although your accounting software often offers many approaches for you, you need to understand the principle behind it.
Even if you put something in the wrong box, it is always a simple process.
Five main components of a profit and loss report
Cost of Selling
Net Profit (or Loss) – Sometimes called the Bottom Line
The net profit line is also called the bottom line. You may hear the statement that we did this or that it goes straight to the bottom. To be clear, this statement means, for example, that we were able to deduct motor expenses from the above profit and loss report, and if we had no other alternative costs, $ 3000.00 would go down the motor cost line and increase our net profit by $ 3000.00
Two main components of balance sheet
(Please note that assets and liabilities are almost always subdivided – usually current ones – in 1 year – and not current – more than a year – we don’t go that deep – leave it to the accountant and when you practice everything else Worry about it)
(Note – merchant borrower’s account is just the money we owe to our customers as a result of the sale of the goods. Payable for people who buy – People who buy items for resale, Telephone account, Petrol account and so on (D) We have shown individuals who have long-term payments (a bank loan separately)
Regarding the bank account – assuming your bank account has too much money, so it falls under the asset (money is an asset that belongs to your business). If the account is largely overdrawn, it is usually in the liability section (a loan from a bank and a business liability).
If it fluctuates between the two, choose the one that has the most. That’s not a major issue. For example, you took it under asset and then it became overdraft. All that is possible is shown with brackets around it.
Things to check regularly –
(At least once a month – more when you start and go through the learning curve) –
Your customer’s age-trial balance (a list of how much your customers pay you from the Receivable module) should always be in the ledger’s merchant borrower’s account.
Not logical when you think about it. The Receivables module tells us that customers must pay x amount. This amount should be the same as the ledger tells us that customers owe.
Your supplier’s age trial balance (a list of how much you pay your suppliers from the payout module) should always be in the ledger’s trade creditors account.
Your stock value report in the product module should always match the account on the ledger’s hands
Regularly compare your bank statement with the balance shown in the ledger’s bank account.
Why you should check these balances regularly – because things can go wrong and if you get it a few months later, you may find it difficult to figure out why they are out of balance. At least if you do, you probably remember something extraordinary.
If you find that something is out of balance – find it and fix it as soon as possible. If you need help getting it – ask your accountant, software trainer or other knowledgeable person