Appendix A - General Ledger Postings

Overview

When the AddonSoftware General Ledger module is installed, one of the main functions of the Sales Register update process in Order/Invoice Processing is to generate general ledger postings (debits and credits) to the General Ledger Daily Detail file. Which general ledger accounts accept these postings depends on how certain codes and parameters are set in the AddonSoftware Accounts Receivable, Order/Invoice Processing, and Inventory Control modules. The accounts affected may include one or more accounts from each of the following categories:

• Sales (revenue)

• Accounts Receivable

• Sales Discounts

• Inventory Asset and  Cost of Goods Sold

• Terms Discounts (posted during cash receipts update)

• Sales Tax Liability

• Freight (revenue)

• Cash Receipts

This appendix provides an explanation of the parameters and codes used to control posting to each of these accounts. It is assumed that the reader has a basic understanding of double entry accounting and familiarity with the operation of the AddonSoftware Inventory Control, Accounts Receivable, and Order/Invoice Processing modules.

Sales Account Postings

Examining the chart of accounts of most businesses, one finds that the revenue section is either very simple (i.e., it has only one or two basic sales accounts) or more complex and organized according to the way management views its various revenue sources. When several revenue accounts exist, they often represent groupings of sales by either customer type or by product line.

For purposes of posting to the general ledger, the basis for determining which of these two grouping methods is used is the Distribute Sales By Item parameter in the Accounts Receivable module. Regardless of how this parameter is set, the actual general ledger account used for posting sales of standard inventory items during the Sales Register update process is always taken from a distribution code. The distribution code is either associated with the inventory item that is sold or with the customer who buys the item.

If the Distribute Sales By Item parameter is marked, the revenue account(s) used during the Sales Register update come from the distribution codes associated with the various inventory items sold on the invoice. (Distribution codes are assigned to inventory items via the Warehouse Master form in the Inventory Control Inventory Item Maintenance task.)

If the Distribute Sales By Item parameter is unmarked, the revenue account for each invoice comes from the distribution code associated with the order or invoice, which comes from the Miscellaneous tab of the order/invoice.

These are the general ledger accounts pre-defined for the Accounts Receivable distribution codes.

      Sales Account                              Accounts Receivable Account

      Sales Discount Account              Freight Account

      Inventory Asset Account              Cash Account

      Cost of Goods Sold Account       

If the Distribute Sales By Item parameter is marked, then the sales account, inventory asset account, and cost of goods sold account comes from the distribution code defined in the Warehouse Information option of the Inventory Control Item Maintenance task. The accounts receivable, freight, sale/discount, and sales tax accounts come from the distribution code and tax code specified in the Miscellaneous tab of the invoice.

If the Distribute Sales By Item parameter is unmarked, all the listed accounts come from the distribution code associated with the Miscellaneous tab of the order or invoice, except the inventory asset account and the cost of goods sold account, which come from the accounts specified in the Inventory master file.

Certain exceptions may exist to this rule for non-stock and special distribution items included on an invoice. Refer to the General Ledger Account Source table at the end of this appendix for a complete list of the sources of distribution codes for each line code type.

The cash account established for the distribution code is not used in standard Order/Invoice Processing tasks. It is provided as one of the accounts in the distribution code so that it may be used by custom applications requiring a cash account for posting.

Accounts Receivable Postings

For each invoice processed by the Sales Register update, the general ledger account used for posting the accounts receivable is always taken from the distribution code specified in the Miscellaneous tab of the invoice. This is true even when the Distribute Sales By Item parameter is set to Y, and each inventory item has an associated distribution code that identifies (among others) an accounts receivable account. The distribution code initially set up in the Miscellaneous tab of a new order or invoice is defaulted from the Customer Master file. This provides a convenient way of controlling the posting to more than one accounts receivable account, each of which is identified with a separate distribution code.

For new customer records established during order/invoice entry, the distribution code initially appearing on the Miscellaneous tab comes from the  New Customer Defaults in the Order Processing Parameter Maintenance task. If no default is provided in the parameters, you must manually enter a valid code during order/invoice Miscellaneous tab entry (refer to the Order Entry and Invoice Entry tasks in the Operations section of this manual).

Sale/Discount Postings

Some companies may offer an overall invoice or customer discount, which is often calculated as a percentage of the invoice amount and then subtracted from the invoice total. Assigning such a discount can be done automatically by using the sale/discount codes defined for the module, each having its own discount percentage. A sale/discount code may be assigned to each invoice as part of the Miscellaneous tab information.

During the Sales Register update, the sale/discount amount for each invoice is calculated and debited to the account identified by the same distribution code used to control accounts receivable posting.

Inventory Asset and Cost of Goods Sold Postings

Each inventory item included on an invoice must be associated with an inventory asset account and cost of goods sold account for posting during the Sales Register update process. The amounts posted to these accounts are the extension of the item cost for each item (either average, standard, or replacement, depending on the Inventory Control parameter setting), unless LIFO/FIFO costing or lotted/serialized inventory is used.

The inventory asset and cost of goods sold accounts are always taken from the Inventory Master file record for each inventory item, regardless of how the Distribute Sales By Item parameter is set. The parameter does however determine whether the Inventory Item Maintenance task prompts for a specific inventory asset account and cost of goods sold account or a distribution code for each item.

If the Distribute Sales By Item parameter is marked, a distribution code is requested for each warehouse record in the Inventory Item Maintenance task. This distribution code identifies not only the inventory asset account and cost of goods sold account, but also the revenue account. If the Distribute Sales By Item parameter is unmarked, the actual inventory asset and cost of goods sold accounts are entered in the Inventory Item Maintenance task, and no distribution code is requested (the revenue account is specified by the distribution code in the invoice Miscellaneous tab).

When an item is identified as a drop ship on an invoice (assigned a line code with the Drop Ship flag set to Y), you can manually enter the item cost if the Order/Invoice Processing Enter Cost for Drop Ship parameter is marked. When this is the case, the manually entered cost is used to calculate the cost of goods sold amount for that particular item, rather than the standard cost for the item.

For non-stock line items (i.e., items entered using a line code of type N), no inventory item exists in the Inventory master file, and thus the inventory asset account and cost of goods sold account are not available. In this case, these accounts (and possibly the revenue account) come from a distribution code that is pre-associated with the line code for non-stock items. Refer to Order/Invoice Line Code Maintenance task in the Operations section for more information about non-stock items.

Terms Discount Postings

When a customer is offered a terms discount, as sometimes happens with an early payment on an invoice, the amount of the terms discount is calculated at the time of the Sales Register update (as specified by the terms code in the Miscellaneous tab). But the amount is not actually posted to the general ledger until cash receipts processing occurs in the Accounts Receivable module. This is because it is not known whether the terms discount is valid until payment is actually received from the customer.

When a terms discount is offered, the posting that takes place during the Sales Register update consists of (among others) a credit to revenue and a debit to accounts receivable for the full amount of the sale, without considering the amount of the terms discount. When the customer’s discounted payment is updated through cash receipts, the discount amount is posted as a debit to a terms discount account, and also as a credit to the accounts receivable account (which supplements the payment received from the customer). The general ledger account used for terms discount posting is identified by the cash receipts code entered in the Cash Receipts Entry task.

By enabling posting to a specific terms discount account, terms discounts taken by customers may be recorded separately in the general ledger, and later reported on financial statements.

Sales Tax Liability Postings

When sales tax is calculated and applied to an invoice, the amount of the tax is included with the debit amount normally posted to the accounts receivable account. The credit side of the sales tax posting is made to a sales tax liability account defined in the tax code associated with the invoice Miscellaneous tab. A breakdown of these postings by sales tax code and month is provided by the Sales Tax Report included with the Order/Invoice Processing module.

If sales tax is calculated for a line item on the invoice, the following conditions must exist:

1. The inventory item on the order or invoice must have its Taxable field marked in the Inventory Item Maintenance - Item Master Information option.

2. The sales tax code defined in the Miscellaneous tab of an invoice must have a tax percentage other than zero.

3. The line code used for the line item in order/invoice entry must have its Taxable field marked in the Order/Invoice Line Code Maintenance task.

Freight Postings

When freight, shipping, or handling charges are input on the Invoice Total screen, the amount is included with the debit amount normally posted to the accounts receivable account. The credit side of the freight posting is generally made to a revenue account specified in the distribution code associated with the invoice Miscellaneous tab. If freight/shipping revenue is to be isolated into a specific revenue account, this account should be entered in the Freight Account field of the Distribution Code Maintenance task. Some companies may choose to post freight/shipping revenue into a miscellaneous revenue account that also includes other types of revenue.

Salesperson Commission Postings

The Order/Invoice Processing module calculates salesperson’s commissions based on each sales invoice entered and updated. Because the final determination of a salesperson’s commission is usually made by the company’s management and paid through an accounts payable or payroll system, no general ledger postings for commission amounts are made during the Sales Register update process. If postings are necessary for financial reporting purposes, the postings to commission expense and commission liability accounts may be made with a general journal entry (in the General Ledger module) or a commissions payable invoice (Accounts Payable module).

Cash Receipts Postings

While not a direct part of Order/Invoice Processing, the processing of cash receipts and the corresponding set of general ledger postings are closely tied to the general ledger posting activity of the Sales Register update. This is particularly true when processing invoices that offer a terms discount. Familiarity with the cash receipts tasks in Accounts Receivable is important to understanding how general ledger postings interrelate within the system.

The general ledger cash account used for cash receipts posting comes from the cash receipts code entered during the Cash Receipts Entry task, not from the distribution code associated with the invoice Miscellaneous tab. The general ledger account required for posting the terms discounts comes from the same cash receipts code. (See Terms Discount Postings, previously.)

Processing Cash Sales Transactions

For cash sales transactions, invoices are not created in the open invoice file. Consequently, no accounts receivable account is posted during the Sales Register update, as is the case for an on-account sale. Instead, a cash account is debited during the Sales Register update, as identified by the cash receipts code entered on the Invoice Total screen during invoice entry. This posting to the cash account (and the fact that no invoice is created for the open invoice file) eliminates the need for a separate entry in the Accounts Receivable Cash Receipts Entry task.

For each set of invoices processed by the module, an additional page called the Cash Sales Register is printed at the end of the Sales Register identifying cash sales and categorizing them by type of sale (i.e., cash, check, or credit card). This provides an audit trail for cash sales transactions and serves as the cash receipts register for over the counter and other cash sales.

Processing Credit Memos

Credit memos are entered and processed as negative amount invoices in the system. Postings made for a standard invoice are created, except that the negative item quantities and charges result in regular postings being reversed (i.e., the sales accounts are debited, and the accounts receivable accounts are credited).

Depending on the purpose of the credit memo, and if any inventory items are returned to stock, the inventory asset and cost of goods sold accounts may or may not be posted. The automatic return of items to inventory is controlled by the line code used for each detail line on the credit memo. Refer to the topic about creating credit memos in the Flow of Processing section for more information.

How Line Codes Affect General Ledger Postings

Each line item on an order or invoice has associated with it a line code that determines the type of line item and other characteristics, such as whether it is taxable, how it interacts with the Sales Analysis and Inventory Control modules, and so forth. The line codes also determine how the general ledger is posted for a particular type of item, which may override the standard account selection for revenue, inventory asset, and cost of goods sold.

Provided here is a list of each type of general ledger account to which the Sales Register update process posts, depending on the setting of the Distribute Sales By Item parameter and the line codes used. You may find it helpful to review the information on the Order/Invoice Line Code Maintenance task in the Operations section of the manual to better understand the following.

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