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Recording Payments,
Recording Sales
Customer sales usually organize from sales journal. However , depending on the relative sophistication of the accounting system , the information date of transaction, customer name and account number, item purchased, amount, and payment terms . Credit sales are summarized to the appropriate sales accounts. Aggregate sales for the 
designated period are then entered into the customer transaction sub ledger account. Finally the sub ledger and sales accounts are posted in batch form to the appropriate general ledger account. And the original invoices. Those are filed for the future use if necessary. When it comes on recording payments, usually made by check, it’s important that all amounts match, the sub ledger listing, any receipt given to the customer and the bank deposit. Sometimes customers help by sending along the invoice stub that’s been issued, making matching to the sub ledger easier. But often they don’t, which means careful matching is important
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Making Entries In to Accounts Receivable
In the last post we had a brief about the control points and now we are going to discuss how the entries are being made in to the accounts receivables. Making entries in to the A/R is easy as one, two , three. 
1 Post each transaction to the customers individual account.
2 Summarize those transactions and create an A/R Sub Ledger
3 Post those entries to the A/R section of the general ledger and any additional accounts designed to offset receivables.
Automated systems often do this part of their function , thus avoiding the error of additional or incomplete entry information. If the entries are posted by hand, remember to follow each of three steps mentioned above to avoid tripping over system or its components and as these entries are made , note that different types of entries require some different considerations.
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A/R Posting,
Balances,
Control Points,
Credit Entries,
Invoice promptly,
Ledger Agreement,
Reports On Receivables
There are two ways of managing the A/R one is the manual one and other one is the automated, both manual and the automated A/R Systems have Six Control Points that will help the A/R accounting on track. The six control points are explained as follows Verify All A/R Balances –no matter what your system, transaction accounting must include enough information to allow verification of the transaction. That may mean including the same or all of the following documentation, all of which must be a verifiable through the customer account records.Invoice promptly - Nothing can bring greater joy or sorrow to a business than good or bad invoicing habits. Immediate invoicing exhibits good records management and fiscal reliability. Late invoicing does little more than delay payment, hurt the company’s financial position, and perhaps even create difficulties for customers who no longer can or want to pay.A/R Posting – Any good receivable system will provide the proof that all invoices have been correctly posted to the customer accounts. This is usually accomplished daily by comparing invoices with the A/R postings.Reports On Receivables – A good Automated system provides regular reports on the state of the accounts, identifying delinquent customers and those that have purchased over their credit line. The system will indicate how many accounts have aged and how much it is.Credit Entries – There are only three ways accounts may be credited which are payment, credit memo and journal entry. Payment is the most common of course. But any system must have a method to address amounts in dispute, returned items and errors that’s the job of credit memos and to write off accounts that are considered uncollectible.Ledger Agreement - An A/R system isn’t a system unless there’s agreement among the sub ledger balances, the general ledger accounts receivable balance, and detailed customer transaction records. Balancing these accounts should be among your systems routine procedure
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Accounts Receivable,
name of the customer,
purchase description
The accounts receivable or A/R is a sub ledger of the general ledger that lists money owed to the company by the customers and other sources. We should add here that a company with a very small group of customers might be able to keep all of those accounts in the general ledger. But this method would be unwieldy for most businesses , so accounts receivable are generally kept in sub ledger. That’s the fairly straight forward way to describe the A/R sub ledger, The good news is that there’s more , much more to A/R than that. The A/R system can be manual or automated. Either way , it must contain the necessary information to support the G/L and be useful to everyone reviewing or sing the information on the individual accounts it reflects. Each A/R sub ledger summary should include the following information which are the name of the customer – enough information to sufficiently identify the customer, purchase description- all information necessary to distinguish the items purchased from other items, date- when the transaction took place, Amount – how much the transaction was for, Sales Amount – The G/L account to which the transaction is to be placed, Cash – whether or not the customer paid the cash. These are the information serves as the basis for regular posting to the G/L whether entries posted daily Monthly or weekly.
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four digit system,
Numberbering,
prefix system,
suffix system,
three digit system
The theory behind the numbering the chart of accounts is to keep it simple as possible. But the numbering system must contain enough flexibility so that accounts can be added with in the context of the sections of the chart in which they make sense. There are several meth
ods by which most chart of accounts are numbered. The three digit numbering system may be probably the simplest for small business, but it limits the amounts of actual accounts that can be included.The four digit numbering system runs very much the same way , but with four digits rather than three digits odentifying the account. The advantage simply is that the four digits rather than three digits identifying the account. The advantage simply is that the four digit system allows for more detail, as well as greater latitude to insert additional accounts with in the individual sections. The layout looks very much the same as the three digit system. Prefix Prefix systems helps to manage subsidiary accounts with in specific sections of the chart of accounts and can be as long and contain as many prefixes as you and the accountant feel the need to have.
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account number,
Creation Of Chart Of Accounts,
description of the account
The chart of accounts is a basic component to any accounting system and one that can’t be misused or ignored. Also, as business needs changes, the company should update its chart of accounts. The typical chart of accounts has two parts for each entry which are the account number and a brief description of the acco
unt. The account number is important because it shows how a particular account is categorized. The descriptions allow everyone to understand how many given transaction should be handled. It may be something like “Office Supplies”, or it may be a bit more detailed. Think of the chart of accounts as a check list of items and areas the company has chosen to keep an eye on. A company that sells widgets might have an account called “Computer Equipment and supplies”, to adequately keep track of several computers and printers, as well as diskettes, paper and so forth. But a high tech graphic design company has three accounts for computers and printers alone and separate accounts for the diskettes and paper stocks. Each account differs, but one consistent rule exists: Set up the chart of accounts to list individually all those accounts for which detail is needed in the management and control desired. A sales oriented company probably won’t need a account for “Rubber Bands” which are best under office supplies. But telephone calls will be separate from gas, light and heat because of the number of calls your sales reps make, that expense needs to be tracked as separate item.
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Chart,
Chart Of Accounts
Like the ancient mariner, no accountant would ever set sail on his or her financial journey with out a map. In this case, the aid of a reliable chart of accounts. 
As a non-financial manager, you need to know that the chart of accounts is the primary tool used to help the accounting department keep the business’s debits and credits straight.The Chart of Accounts is a systematically organized list classifying all of a company’s revenue usual sources of revenue and expenses, arranged and numbered ina logical order to make it easier to find a particular account in the ledger. By the application, the chart of accounts becomes the map of the components of a business’s finances. So, how does that affect a manager? It defines the categories into you are expected to fit all your transactions. If you order a gross of pens, for example you need to indicate the expense as “Office Supplies” or “Art Supplies” or “Promotional Supplies” depending on the intended use and on the specific categories in the chart of accounts used by your company. We indicated earlier that good accounting means good communications. If you’re familiar with your company’s chart of accounts, you can help make life easier for the accountants and make financial operations more efficient.
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Audit Trail,
Self Audit
One of the purpose for the accounting function is to provide a history of transactions to any one who cares or needs to know the financial inner workings of the company. That’s generally someone with in the company. But sometimes, the situations brought on by outsiders require department managers to be able to follow a transaction through the book work and come out the other side with the positive proof that the right accounts were credited or debited. That scaled building an Audit Trail. Done Correctly and with the aid of the G/L, the system should provide the proof necessary to answer both internal and external
questions.The G/L can help you to perform the self audit, the following are the few of those,
1)Check the general ledger entry for the purchase . Chances are its there, but may be part of the batch brought over the sub ledger. If the payments are categorized by date, tracing the purchase back to the due date should be relatively easy.
2)In the accounts payable sub ledger, trace the invoice by the company. The batch information should yield the date paid, check the number that paid bill, the amount paid and even the invoice number. Then you can find the invoice.
3)From there the cancelled check and the payment listing the manufacturer’s invoice on the cancelled check stub should be easy to locate. A copy of the check and the original invoice should satisfy the vendor at least until the next time.
These interactivity of files between the G/L and the subledgers is critical to keeping company accounts clean and in balance.
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Balancing Out,
bottom line
It’s a good practice that the accountants should periodically , most probably every month should compare the amounts in the G/L against the amounts in the sub ledgers. They may do so in order to prepare the financial reports, but they certainly should do it just to ensure accuracy. Despite what some accountants say , they are too are only humans and sometimes find their sub ledgers and G/L out of balance. It can happen on either side of the equation and each requires its own remedies.Since you won’t be responsible for finding the source of the problem and making the necessary corrections, we won’t go into the details of the procedures followed. Just remember that the accountants are humans and occasionally make mistakes. Be patient and understanding as you would expect them to be when you neglect to provide a source document or fill out the proper forms!Once the company hits the year end, it’s time to close the revenue and expense accounts and transfer the difference between the two accounts as net income to the statement of owner’s equity. The bottom line figure from that statement is then entered under “ Owner’s equity” on the balance sheet. The accounting for the year is transferred, in effect zeroing out the accounts. You are then redy to start the next Fiscal Year.
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Balance Sheet,
general ledger,
income statement,
Journal entries,
posting
If a company’s accounting system is its financial body , think of the general ledger as its heart. The general ledger exists foe three main purposes: It serves as a summary of every transaction as recorded in the books of
original entry; It’s the source document for all financial reports and it offers an audit trail for tracking individual transactions, should that become necessary. The general ledger doesn’t stand alone in vaccum , but interacts rather cleverly with other parts of the company’s accounting system. This occurs through a process called posting. Posting is simply entering into the G/L a summary of transactions recorded in the sub ledgers or journals, with a reference number. The general ledger consists of two main parts first is the Balance Sheet and other is the income Statement, these two play the most important role in the Ledgers. Transactions posted directly in to ledger include returns of merchandise, allowances from a supplier for credit, asset acquisitions, asset sales, investor capital contributions, loan draw downs and loans. They are called Journal entries. We will get further deep through the entire process in the following posts.
