Once you have selected an accounting method, the next step is to set up your General Ledger. This step needs to be done regardless of what tool you use to manage your accounting, whether it is a full-featured product like TOPS Professional, or a simple solution like Excel.
What is the General Ledger (GL)?
The GL is the running record of all the transactions you do. It is the foundation of the entire accounting system—all subsidiary ledgers (like receivables and payables) create GL transactions. Like a calculator – it keeps a running tape.
The General Ledger is where certain key financial reports are generated. The Balance Sheet, Profit and Loss Statement and Reserve Fund Balances are all generated out of the General Ledger.
A key part of the General Ledger is the Chart of Accounts. The Chart of Accounts represents all the active accounts that are being kept track of within the General Ledger. The Chart of Accounts is also available to all the subsidiary ledgers so there is a common link to pass transactions from the subsidiary ledgers to the General Ledger.
General Ledger Sections
The Chart of Accounts and, therefore, the General Ledger is broken up into these 6 sections:
Asset accounts appear on Balance Sheet, normally a Debit balance. Examples include Cash in Bank Accounts, Petty Cash, CD’s, Accounts Receivable, Prepaid Insurance, Land
Liability accounts appear on the Balance Sheet, normally a Credit balance. Examples include Accounts Payable (bills), Unearned Income, Loans (payable)
- Equity (or Owners Equity):
Net Worth (amounts left over after assuming all liabilities.) Normally a credit balance. (A debit balance would indicate a Loss.) Equity accounts appear on the Balance Sheet (Retained Earning).
Income accounts appear on the Income Statement, normally a credit balance. Examples include Maintenance Fees/Dues, Special Assessments, Laundry Income, Interest Income, Rental Income, Work Order Income, Fines.
Expense accounts appear on the Income Statement, normally a Debit balance. Examples include Utilities, Monthly Landscaping Fees, Pool Maintenance, Office Supplies, Salaries, Bank Charges.
Tracking Your Transactions
To be of maximum benefit to the users in the management office and also to accountants and auditors who might be examining the community’s books, an accounting system should keep track of every transaction for at least the current fiscal year.
Preferably, the accounting system will let the management office elect to keep multiple years of history readily available so that questions about previous years can be easily answered. A detailed history over several years in not only the General Ledger but also the subsidiary ledgers (modules) of Receivables (AR) and Payables (AP) should be available on demand when needed to research a question.
Features to Look For in a GL
Drill-down from the General Ledger back to the details of a transaction in the subsidiary ledger is an important tool for answering questions about what makes up a particular General Ledger transaction. Drill-down only works when the General Ledger transactions are tied into the subsidiary ledgers. It is very handy when trying to research a General Ledger balance, but is of maximum benefit when multiple years of transaction history are kept in the accounting system.
Additionally, your ideal accounting system should be "date sensitive". This means it can read transactions by their dates. There is a major advantage to a date sensitive accounting system—you can reprint any report for any date in the past and the accounting system will regenerate the report with exactly the same information as the original report that would have been generated on the past date. This is a huge help if a report has been misplaced or a retroactive accounting entry must be made which changes a previously generated report.