General Ledger > Folders > Actuals

Type

The "type" describes the accounting classification of the account. There are a number of account types: asset, liability, expense, income, cost of goods, provision for taxes, owner equity, net income, other expenses, and other income. Each type has particular characteristics and uses from an accounting standpoint. The type determines the type of balance an account holds (debit or credit), for one example. An account's type also determines which financial statements the account appears on. Here are some general descriptions:

Assets

Assets represent what your company owns such as cash, inventory, investments, and property. It is also used to record money that is owed to your company (receivables, rebates, etc.). Often, assets are represented as either "current" or "fixed/long-term" assets. Current assets are fluid and typically represent assets that frequently change during a fiscal year. Long-term or fixed assets refer to assets that usually don't change significantly through the fiscal year such as property and investments. Most asset accounts maintain debit balances (balances are increased by debits and reduced by credits). Asset accounts are included on the Balance Sheet, but not the Income Statement (aka. Profit & Loss or P&L). Asset accounts will carry a balance from one year to the next unless adjusted.

Liabilities

Liabilities represent what your company owes such as unpaid purchases (accrual), debt, and deposits collected but not yet applied to a sale. Liability accounts are also commonly grouped into two sub-types: "short-term" and "long-term." Short term liabilities would be those liabilities due within less than one year (utility bills, order deposits, inventory purchases, etc.). "Long term" would usually include those liabilities that would extend beyond the fiscal year such as mortgages and other long-term loans. Liability accounts usually maintain credit balances (balances are increased by credits and reduced by debits). Liability accounts are included on the Balance Sheet, but not the Income Statement (aka. Profit & Loss or P&L). Liability accounts will carry a balance from one year to the next unless adjusted.

Owner's Equity

Owner's Equity, also referred to as retained earnings, represents the net value of your company and, like net income, is used to balance your assets and liabilities. When journals are posted and the total asset and liabilities don't equal, owner's equity is affected. With release 11.1.0 (January 2016), we made changes so that retained earnings (and net income) can optionally allow branch account mapping; however, this only happens if a company does "manual" posting and does not automatically post journals. In this case, you would need to create department accounts (from the Chart of Accounts maintenance form). In cases where a journal has account entries with departments that are not mapped to a specific branch, the primary account ("0000") department would be used; otherwise, the department accounts would be used.

There is usually no need to manually specify the owner's equity entry in journals, it is created automatically when needed. Owner's equity is sometimes manually adjusted when a company pays dividends (also referred to as an owner's draw). Owner's equity (retained earnings) does carry a balance from year-to-year; however, sometimes, companies prefer to move the balance from a "current" year retained earnings account to a "prior" year retained earnings account at the beginning of a new fiscal year. The owner's equity (retained earnings) account is designated via Detailed Mapping. At least one retained earnings (owner's equity) account must be defined and mapped prior to using the ledger actively.

Income and Other Income

Income and "Other Income" accounts are used for recording revenue your company receives from sales or other reasons. For example, when "cash" is received due to a sale of merchandise, an income (sales) account would be increased as would an asset account for the cash collected. Income accounts typically maintain credit balances. Given our example, the asset account is increased by a debit, and the income account is also increased, but by a credit. Income accounts are not included on the Balance Sheet, but are included on the Income Statement which is also known as a statement of Profit & Loss (or P&L). "Other Income" may be optionally used to separate certain income accounts from others on financial statements. Income-type account balances always begin at zero for a new fiscal year (they do not carry a balance from one year to the next).

Cost of Goods

Cost of Goods represents the cost of inventory that has been sold, and is used as an offset when "asset" inventory is affected by sales (and returns). This account type is very similar to the "expense" type but only deals with inventory. Cost of Goods accounts usually maintain debit balances (balances are increased by debits and reduced by credits). For example, when a product is sold, your company's inventory is reduced. At this time, cost of sales is increased by the cost of the products you sold (the cost of sales expense is offsets the income received from the sale). Cost of Goods accounts are included on Income Statement (aka. Profit & Loss or P&L), but not the Balance Sheet. Cost of Goods account balances always begin at zero for a new fiscal year (they do not carry a balance from one year to the next).

If you plan on comparing your sales and cost of sales from totals and sales reports to the ledger balances, it's best if you establish a separation between the cost of sales for actual inventory from the cost of sales for adjustments and any "items" that aren't recorded as sales (gift cards, for example). Gift cards aren't recorded as "sales" when they are sold; they are only recorded as sales when used as a method of payment. This is necessary so that the later use of the gift card as payment doesn't again reflect as a sale (essentially, the sale would be recorded twice). There are also items that are intended for use as coupons (credit SKUs), deposits, etc. which each should be considered individually and separated as needed.

Expenses and Other Expenses

Expense and "Other Expense" type accounts are used for recording costs related to operating your business. This would typically include paying utility bills, rent, postage, office supplies, and payroll as some examples. Expense accounts maintain debit balances, so the account balance is increased by debits and reduced by credits. Expense accounts are included on Income Statement (aka. Profit & Loss or P&L), but not the Balance Sheet. "Other Expense" may be optionally used to separate certain expense accounts from others on financial statements. Expense-type account balances always begin at zero for a new fiscal year (they do not carry a balance from one year to the next).

Provision for Taxes

The Provision for Taxes type is similar to the expense type account and is used for recording tax related expenses. Like an expense account, the "provision for taxes" type maintains a debit balance. Provision for Taxes accounts are included on Income Statement (aka. Profit & Loss or P&L), but not the Balance Sheet. Provision for taxes account balances always begin at zero for a new fiscal year (they do not carry a balance from one year to the next).

Net Income

This is a special type of account. It is used for recording the net difference (if any) between non-balance sheet accounts (expenses, income, etc., but not assets, liabilities, and owner's equity). The net income amount is also referred to as "net profit or loss." With release 11.1.0 (January 2016), we made changes so that net income (and retained earnings) can optionally allow branch account mapping; however, this only happens if a company does "manual" posting and does not automatically post journals. In this case, you would need to create department accounts (from the Chart of Accounts maintenance form). In cases where a journal has account entries with departments that are not mapped to a specific branch, the primary account ("0000") department would be used; otherwise, the department accounts would be used.

Net income entries are generated automatically when journals are created (when necessary). Net Income account(s) cannot be entered manually or added to any journal or detailed mapping (doing so can effect the ledger's overall balance). Net income account balances always begin at zero for a new fiscal year (they do not carry a balance from one year to the next). Net income account(s) are designated via Detailed Mapping. At least one retained earnings (owner's equity) account must be defined and mapped prior to using the ledger actively.