Introduction to Accounting Systems

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Revision as of 21:58, 3 November 2007 by JRZeitlin (talk | contribs) (Bookkeeping)
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This screen is designed to give a brief overview of Accounting concepts and common practices. A general understanding of some basic accounting will make working with the Financials application easier and more intuitive.

What is Accounting

The purpose of accounting is to track the financial condition of a company, by recording and analyzing the following conditions:

  • How much money do customers owe the our company?
  • How much do we owe other people (vendors, employees, etc.)?
  • How much of our product did we sell?
  • How much did the product cost our company?
  • Did we make or lose money?
  • How much "cash" do we have left?


Bookkeeping is the practice of recording every financial transaction of a person or company. There are some basic bookkeeping terms that are standard in accounting and used by the Financials application. First is the

  • Ledgers - All transactions are recorded in a ledger, which derives its name from the physical books that were used before computers.
  • GL (General Ledger) - The General Ledger is a consolidated ledger that applies to everything in the company.
  • Subledgers - A Subledger (also referred to as the subsidiary ledger) tracks only transactions in a certain category or area of the business (for example: the "Payroll Ledger"). Please note that Opentaps only uses a General Ledger.
  • GL Accounts - – GL Accounts are used to track transactions and balances for a particular type of activity.
    • Each GL account is, by convention, referred to by a code and a name (for example, 120000 Accounts Receivable).
    • A GL account can track something general (for example, “Sales”), or specific (for example, Accounts Receivable Mastercard).
    • Typically, GL accounts follow a hierarchy, and are assigned a code accordingly (for example: 122000 All Accounts Receivable, 122100 Accounts Receivable Credit Card Processors, 122200 Accts Receivable Mastercard).
  • Chart of Accounts – This refers to all the GL Accounts used by a company to track transactions.

Every transaction points to a GL Account, and is either a Debit or a Credit to that account. By convention a debit is thought of as on the left and a credit is the on right. For each transaction the sum of the debits must be equal to the sum of the credits (for example, a credit on the Payroll account will be a debit from whatever account employee checks are paid out from).

For additional information on bookkeeping, please reference [[1]]